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A recent episode of “The Ramsey Show” featured a heated discussion about credit card use that generated strong opinions among the co-hosts. George Kamel and Rachel Cruz.
Miguel, a caller from Dallas, said he pays off his credit cards in full every month and uses the points to finance family trips. He told hosts he hadn’t had any credit card debt in more than a decade and recently used rewards to cover $4,000 in flights for a family trip to Europe.
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“I use my credit cards for everything… that doesn’t charge me a fee,” Miguel said.
Kamel acknowledged Miguel’s discipline, but responded, “Is it okay? Sure. If it works for you, do it. But the reason you called is because there’s something inside of you that might be thinking: Is there a better way?”
At one point, Kamel asked, “How much did you have to spend to earn so many rewards?” Miguel estimated it would probably be “a couple hundred grand” in a few years. “There we go. Ding, ding, ding,” Kamel said. “So, Miguel, the truth is that you could have saved four grand from a few hundred grand that slipped through your fingers.”
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He wondered if the rewards were worth the potential overspending. “Let’s say you spent $200,000 to get $4,000. That’s a 2% refund,” he said. “Use your debit card for a year and see if you spent 190 grand instead of 200. Well, that saved you 10 grand.”
Cruze took a stronger stance, pointing to behavioral studies that show people spend more when they use credit cards. “Because there is no emotional connection to your money, you unconsciously, without even realizing it, end up spending more.”
He also raised the moral side of the issue. “What I find so frustrating is that these banks and this whole debt industry have screwed the American people,” Cruze said. “They haven’t helped people. They’ve hurt people. That’s why we have a job.”
Cruze added: “The people who are hurting (single moms with $11,000 in credit card debt) are the ones making the bank richer so people like you can get points and free flights. I don’t want to get a free flight out of that.”