You Should Listen to This Warning About Rewards Cards from Dave Ramsey

Don't get a rewards card without reading this crucial advice.

If you're familiar with finance expert Dave Ramsey, you probably know that he is not a fan of credit cards. In fact, Ramsey urges not using cards at all -- even though credit cards can help you build credit and come with other perks.

For most people, the advice to swear off credit cards entirely is bad advice. Cards can make your life easier in many ways, from making it simpler to rent a car or hotel to helping you earn a good credit score that can reduce other borrowing costs. 

But, despite that, Ramsey has one warning about cards that everyone should heed. 

Pay attention to this advice on rewards cards from Dave Ramsey

So, what's Ramsey's warning about credit cards that you should take to heart? It relates to rewards cards. 

"As the name tips off, rewards cards offer rewards like cash back, points or travel perks," Ramsey explained. "These cards may seem like a sweet deal, but that makes them even more dangerous -- most of the time, credit cards with rewards also have higher interest rates."

And Ramsey is absolutely correct about that. If you sign up for a rewards credit card, there is a very good chance it will have a much higher annual percentage rate (APR) than cards that do not offer you cash back, points, or miles for spending. 

Card issuers need to make a profit and if they're paying out rewards for purchases, they usually increase the interest rate they charge customers to ensure they are still bringing in plenty of cash. 

How to follow Ramsey's advice the right way

Ramsey believes you should avoid using rewards cards entirely. He thinks using any cards can lead you to spend more and create too great a risk of going into debt. 

But, while he's right to warn that rewards cards have higher rates, his suggestion to just say no to using one isn't the best way to deal with the risk that rewards cards can present. Instead, what you should do is commit to using credit cards responsibly and carefully consider your financial situation when deciding what kind of credit card to use.

If you are able to pay off your credit card bill each month because you live within your budget and can control your spending, then a rewards card is absolutely the right kind of card to have in your wallet. The fact that rewards cards come with higher interest rates will not matter to you at all in this situation. You won't be paying interest because you will be paying your balance in full and no interest will accrue at all.

However, if you are using cards to finance a big purchase that you'd pay off over time, then you would want to look for a card offering an introductory 0% APR on new purchases for a number of months. This 0% APR and the chance to avoid interest charges would be more important than good rewards. And if you suspect you could end up carrying a balance at some point, then you'd want to look for a card that has the lowest financing charges even if that meant its rewards program wasn't robust. 

In other words, you should absolutely listen to Ramsey's warning about rewards cards -- but you should do so in a smart way that enables you to use these cards to benefit you in appropriate situations.