
Dave Ramsey: "Why We Don't Take Credit Cards" - wyclif
http://www.flickr.com/photos/merlin/3080707144/
======
patio11
I bank at a small Japanese bank in the middle of nowhere. One day, I visited a
small hospital, also in the middle of nowhere. As it happened, I did not have
cash on me to pay the fee. I told the nurse to please wait for a moment while
I went next door to use the ATM.

Next door is a gambling establishment, with an ATM outside of it. I tried
getting cash and the ATM refused my card.

So I ended up walking three blocks (small town, luckily) and found myself a
bank branch, which took my card. I returned to the hospital, paid the bill,
and went on with my day.

Some time later I mentioned to my bank manager "By the way, I think my card is
bugged -- it got rejected by a reader the other day." And I told him the
circumstances.

"Sir, do you remember when we gave you your credit card that you promised not
to gamble with it?"

"Yes, of course. I don't gamble, ever."

"We appreciate that, sir. Neither does the bank. Nor will we permit our
customers to hurt themselves by gambling. Accordingly, we do not site any of
our ATMs by gambling establishments."

"Oh, I can respect that. Of course, your competitors do, and that makes them
money."

"Our _real competitors_ do not. We have an understanding with them on this
issue: no honorable bank in $SMALL_TOWN_JAPAN will countenance our customers
losing their livelihoods while our eyes are still white. [Japanese idiom,
means "while we still draw breath"]"

"But there really is an ATM in front of it?"

"It is from a Tokyo bank, and a disreputable Tokyo bank at that. And let them
put an ATM there. They have no branch in this town, nor will they ever."

"But they don't need a branch, do they?"

"No. Bank A, Bank B, Bank C, and ourselves have enough branches to have 98%
share of deposit accounts in this town. A, B, and C share our _understanding
of the importance of protecting this community_."

"Wait, so NOBODY can use that ATM?"

"Maybe they can soak some tourists. _wry smile_ Its a free market, you know."

I've got to say, the capitalist in me thinks "Oh crikey, cartelization". The
rest of me really, really likes my bank.

[Edit: I just looked in my dictionary and it says that the actual idiom is
"While my eyes are still black". I guess that means my memory is faulty.
Wouldn't be the first time. Take note, students of the language.]

~~~
Herring
What other understandings do they have? Gamblers can also walk 3 blocks, this
attitude might end up doing more harm than good. I've heard a few things about
Japan.

~~~
jimbokun
It's surprising how something as seemingly trivial as having to walk 3 blocks
can change human behavior.

~~~
nick5768
This is so true.

------
neilk
I'm a bit disappointed in all this "bah humbug, I can manage my credit cards"
attitude.

That site is specifically for people who are struggling to manage their
finances. I'm not really sold that their reasons for not accepting credit
cards make sense (lack of fraud protection is the biggest problem). But it
makes some psychological sense. You don't see a lot of AA meetings held in
bars.

Also, complaining that the average yokel can't manage their credit is like
complaining that users can't deal with a command-line interface. Sure the
discipline to learn it would pay off, but most people aren't wired that way.
Furthermore the credit system as we have it now is designed, by very talented
professionals, to prey on common flaws in the human mammal's ability to assess
risk and future obligation.

Everybody has something that they're irrational about. Don't make me ask you
how much time you've spent on WoW this month.

Lastly, those of us on this board are probably lucky to have relatively high-
paying jobs, even if we were less-than-perfect students or tried startup life
for a while. The demand is just that great. But software is a huge anomaly in
the North American economy. Wages for most people have been flat, relative to
inflation, for decades. And furthermore, the risk of sudden and prolonged
drops in income has been much higher since 1970 or so. For hackers that means
_okay, okay, I'll take the stupid J2EE job_. For the average North American
worker, it might mean accepting some stupid low wage service job.

Anyway, the point is, most families have been making up the difference with
credit cards. They're not living extravagantly and still they're falling
behind. See this lecture by Elizabeth Warren, "The Coming Collapse of the
Middle Class". (<http://www.youtube.com/watch?v=akVL7QY0S8A>) that punctures
some of the myths with hard stats.

~~~
Tichy
"Also, complaining that the average yokel can't manage their credit is like
complaining that users can't deal with a command-line interface. Sure the
discipline to learn it would pay off, but most people aren't wired that way."

That is a very, very scary statement. Basically it implies that most people
are doomed to live a live in dependency and slavery, because they will always
depend on the goodwill of other people to not screw them over. Maybe it even
implies that in the long run communism is the only workable system. I can't
imagine that the majority of people is THAT bad at maths :-/ I mean it is just
basic addition and substraction. Even if you can only count to 5, you could
get a rough idea of the state of your credit (number on bank account has less
digits than number on credit card debt == bad).

~~~
GavinB
We don't need communism. Just basic protection from loan sharks, con artists,
and the worst dishonest business practices.

Libertarians may hate it, but consumer protections make the lives of most
people simpler, safer, and more free. They also reward honest businesspeople,
rather than rewarding the con artists who are the least detectable.

~~~
Tichy
I'd like to point you to PG's recent article. Additional checks end up biting
you in the back.

Also, how are consumer protections supposed to work? I think they would
require a hypothetical "perfect" state employee who is 100% honest and 100%
omniscient. Even if a few of such people would exist, I doubt that there would
be enough of them to monitor ALL kinds of economical transactions.

Rather, I suspect the more regulation there is, the more corruption or hidden
taxes will there and be a burden on society. Even today it almost feels as if
one can't do anything without the protection of an army of lawyers. More
regulations => this only gets worse. Lawyers will be leeching off us, with the
support of the state.

Also the current crisis can not simply be blamed on crooks. Everybody was
playing the game, down to the average "normal, honest" home owners. Plus,
people will always act selfish, and in trades, try to get the better deal of
the involved parties.

~~~
neilk
_Additional checks end up biting you in the back._

I think what he said was that additional checks have a cost that must be
weighed against the benefits.

Funny, you are the one who is touting himself as able to handle complexity.
And yet in this debate you can only perceive black and white. If communism is
bad, that means that ALL regulation is bad! And if some people need extra help
or training to deal with credit, that means that they're SHEEP who will be the
wards of the state forever!

I am sad that nobody has taken up the point that I was trying to make; that we
all need some help from time to time. Hackers have an easy time bouncing back
from rotten luck, illness, or poor life choices; things that would cause other
people to eventually amass an unsustainable debt.

~~~
Tichy
I am all for helping people. I am just not sure who could be trusted - I don't
necessarily trust the government to make the best choices for the people. And
in this crisis, there is too much scapegoating going on for my taste. And
calling for regulations seems to be an extension of that.

If you call for regulations, first tell me why the market failed to regulate
itself (that is weed out the crooks, if the crooks are to blame)?

If you are calling for more transparency, maybe I can go with you. But I don't
think complex rulesets about who should give credit and who should be allowed
to get credit are the way to go forward.

I don't want to claim to understand what pg wrote, but my understanding would
be he wrote among other things about something exactly like that: more
regulations means it becomes more costly to give somebody credit. Therefore
there will be less firms giving credit, and "smaller people" will have more
problems getting credit because they are not worth the bother. In the end
there will be a monopoly of a few big firms who handle credit.

Also, what if housing prices really would have risen forever, and regulations
would have prevented people from gaining from it? Who is to say in advance
what course of action is right? Or would you say everybody who took out a
mortgage was a crook?

~~~
GavinB
I thought PG's article was pretty spot on. He wanted regulatory actions to be
viewed in the broader context with an understanding of the net drag of all the
regulations. If we could convince elected officials to do this sort of
analysis, we might be able to weed out a lot of the unnecessary
inefficiencies.

That said, the solution to an overabundance of regulations is not necessarily
to utterly eliminate them, and the lack of perfection should never be an
excuse for not performing an action when the consequences of inaction are
worse.

I won't pretend to know what should or shouldn't have happened in the current
financial crisis. My post was really directed more toward basic consumer
protections -- things like truth in advertising, not selling rotten meat,
being upfront about the terms of payday loans, etc.

------
einarvollset
If you travel internationally, or spend money in places you don't trust 100%,
or want 1-5% cashback, or in any way want the protection that comes from
calling your credit card company and saying the magic words "That is a
fraudulent charge" and not spending 6 weeks proving it, then you're an idiot
for using a debit card.

~~~
hbien
I'm confused, can I use my debit card as credit? Whenever I try to use it,
people ask "debit or credit" and it'll work as credit.

~~~
dougp
Retailers get charged about 20 cents per 100$ for debit transactions and $1.48
per 100$ for credit. If you say credit with your debit card you are giving
your bank that larger cut and getting none of the protections associated with
a credit card. Except you probably don't have to enter your pin number which
may be important to you. <http://redtape.msnbc.com/2007/09/paper-or-
plasti.html>

~~~
dehowell
Many retailers tack an extra $1 charge when you use a bank card as a debit
card... so I always run it as credit.

------
tjmc
A better approach would be to teach people how to use a credit card properly.

I've setup my credit card to be paid off in full on the due date each month so
I pay no interest. My savings account is offset against my mortgage, so it's
generally better to pay by credit card as that defers savings account
withdrawals (thus saving mortgage interest) by up to 45 days.

The card fee is paid by reward points on the card and there's enough extra
points per year for between $200 & $400 in store vouchers.

So combining the mortgage interest savings, the rewards payouts and the fact I
pay no interest or annual fees, I'd guess the card saves me ~$1000 a year.

As a debit card is just as easy to use as a credit card, the argument that I'm
likely to spend more with a credit card is bogus as well.

I suspect the fees Dave Ramsey would have to pay on credit card transactions
may be higher than on debit cards though...

~~~
neilk
_As a debit card is just as easy to use as a credit card, the argument that
I'm likely to spend more with a credit card is bogus as well._

Except for the credit card continuing to work even if you don't have the funds
right now?

~~~
Psyonic
Unfortunately, so will be the debit card (til all the charges go through, at
least). Then you get the wonderful luxury of paying multiple $35 overdraft
fees on top of your bills, which is exactly what you need when you're hurting.
Cash only is probably the best policy for these people.

~~~
wmf
Once in college I ran my bank account balance to zero and my debit card
stopped working; all transactions were refused and thus I was spared any
overdraft fees. Maybe some debit cards aren't as good, though.

------
sachinag
OK, I get the "debt is bad" angle here.

But just so you know - the $50 limit on fraud that you're protected by if
someone steals your credit card? It's not there if you use a check card. If
you want to shop online, use a real credit card. If you want to shop offline,
use a regular ATM card + PIN identification.

<http://www.pirg.org/consumer/banks/debit/fact.htm>

~~~
tptacek
Yeah, so, I think this might have been true in 1997, when this article was
written. And it may _technically_ still be true based on the law --- I haven't
checked. But it's certainly _not_ true in practice: every major bank
guarantees accounts against fraud with $0 liability, a service I have availed
myself of repeatedly with Bank of America. If they suddenly decided not to
honor that pledge, they'd be civilly liable.

I'm calling "urban myth" on this debit card liability thing, and eagerly await
my comeuppance.

~~~
gojomo
If you've been victim of debit card fraud, how long did it take you to notice,
and how quickly did BofA return cash to your account?

I know debit card loss limits at major banks have become similar to credit
card loss limits (as a competitive matter), but there are still practical
differences.

Debit fraud means your bank account is empty right now -- and until you
discover the fraud -- meaning payments of other expenses may fail
unexpectedly.

The worst that can happen with credit card fraud is that one card gets denied.
You are never short of cash unless you pay the bill without
reviewing/disputing it, weeks later. Your liquidity is under your control, not
the thief's or the bank's.

~~~
tptacek
That's all true, but it's not the argument the original comment made.

------
BigZaphod
Here's his full policy as stated on his website:
<http://www.daveramsey.com/etc/cms/debit_card_policy_32.htmlc>

Note the bit at the bottom about not actually being able to tell a debit card
from a credit card. This is really just a philosophical position. He can't
enforce it online due to how the card processors work. I believe he tries to
enforce it at his live shows, though, by simply not taking any cards that
appear to obviously be credit-only.

------
dannyv
If you can't manage your own spending habits, use a debit card. If you treat
your credit card spending like you would a debit card and pay off the balance
in full, there are slew of benefits.

Here's a great credit card offer I recently found:
[http://www.schwab.com/public/schwab/banking_lending/credit_c...](http://www.schwab.com/public/schwab/banking_lending/credit_card?cmsid=P-990780&lvl1=banking_lending&lvl2=credit_card)

2% CASH BACK ON EVERY PURCHASE, automatically deposited into an interest
bearing account at the end of the month, which has an optional checking option
providing free checks and full ATM reimbursements, no fees.

If instead you used a lousy BOA debit card, you'd have no cash back, a bunch
of fees, and a hell of time fighting any illegitimate charges.

~~~
markessien
You think that the point of that offer is to make YOU money? No, it's to make
the bank money by convincing enough people to use credit cards. If everyone
would follow your system, that offer would not exist.

So these 'benefits' you tout are just marketing.

~~~
dannyv
The point of the offer is for the bank to signup new customers. I make money
from cashback and save money on ATM fees. The bank won't make much if any
money on me, but I'm not the average customer.

Many of the new customers will carry a balance, transfer a balance, and/or
invest & trade with them. This makes the bank money. Now if everyone paid
their balance in full, this offer wouldn't exist, but of course this doesn't
happen.

------
jasonlbaptiste
Seriously? This is going to get voted up? Don't even try passing that- he
should "practice what he preaches" crap on me to justify why he should do
this.

For the record, I'm personally against credit cards too. I only keep an AMEX,
for emergency use, which has a zero balance every month.

We're all usability fanatics here, and adding friction like this is asinine.
If anything, give people a discount for not using a credit card or use this as
an opportunity to preach to them.

I'd also be able to at least empathize with this nutjob if he said it was
because of the fees. These fees are why some small businesses are still cash
only or credit card above a certain amount.

------
tdavis
Funny, because I pay for _every_ possible purchase with a CC and have no debt.
And the one time I paid for something with my Debit card, I was overcharged
and essentially had no recourse. When someone got a hold of my CC number
somehow and started making charges, I called AMEX, gave them nothing beyond
the _amounts of the charges_ and they charged everyone back for me.

Oh, and I have over 40,000 Points on that card right now which means, since
I've never paid any interest, AMEX is paying me to use their card. This guy is
right, CCs are the Devil. When I die, they'll take that money out of my soul I
suppose.

------
danielh
I don't know Dave Ramsey, but he apparently puts his money where his mouth is.
And this should be honored.

Whether you agree with his opinion on credit cards is another story.

~~~
Angostura
Actually, he's asking you to put _your_ money where his mouth is - and without
any credit card protection.

A cynic would also point out that that by not accepting credit cards he also
avoids losing the cutr of the transaction that they charge and so makes more
money.

I'm not a cynic of course. Personally, my credit card is paid of automatically
each month in full.

~~~
jimbokun
"Actually, he's asking you to put your money where his mouth is..."

Uh, yes. That is his entire business proposition, telling people how to manage
their finances.

------
run4yourlives
You know, those of us who travel internationally find it much more convenient
to carry a CC then a debit card.

Also, putting business expenses on a CC is just plain common sense, especially
if you work for someone else. Why should I lose interest waiting for
reimbursement?

------
chris11
I don't know much about Dave Ramsey, and he seems somewhat legitimate so far,
but I'm pretty nervous about spending money with a debit card instead of a
credit card. I want something with more fraud protection than a credit card.

~~~
wyclif
Yes, even though Ramsey apparently advises debit card users to opt for
"credit" rather than "debit", his hardline stance might create a problem if
you're accustomed to using credit cards for major purchases.

------
nanijoe
There's just no way I'm entering my debit card details online. If a crook gets
a hold of those details somehow, they'll be spending directly from your bank
account.

------
Tichy
I think that is just patronizing. Thank you, I can decide for myself whether I
want to use credit cards or not.

------
KirinDave
"Never mind that credit cards are basically the only safe way to spend money
on the internet! Give us your debit card so we can _really_ inconvenience you
when our database is stolen!"

Credit cards are terrible if you abuse them, and the whole credit system is
mucked up. But they are otherwise very pro-consumer, because you have no
liability when you are defrauded.

------
zmimon
Why does an article entitled "Why We Don't Take Credit Cards" not explain why
the person concerned does not take credit cards?

What is it that makes it so hard for people to come up with a headline that
vaguely resembles what they have written about?

------
kqr2
Does Dave Ramsey's company pay all of its suppliers with cash, debit card or
equivalent? That would really be practicing what you preach.

~~~
BigZaphod
Yes he does. He doesn't use any credit at all. Ever.

------
mynameishere
Twice I've had fraudulent charges on credit cards. Needless to say, I lost
exactly zero dollars in the process--in most cases, the merchant sinks the
cost to keep Mastercard happy. That, and the fees, are probably the real
reasons why this person doesn't want credit cards.

------
newt0311
GAAAHHHH!!! Enough with this credit cards are bad BS.

Cons with CCs: If you don't manage your funds well, you git hit with a 20%+
interest rate and will never likely climb out of that hole. Solution: learn to
manage debt. Seriously, most CC companies now allow direct account transfers.
If you are that scared, whenever you make a purchase, go home, log in to your
bank's website (every major bank has one, if yours doesn't, open an account
with one that does), and _pay off the card immediately_. Its not rocket
science, just basic financial management.

Pros with CCs: Fraud protection. Easily one of the biggest plus points of CCs.
Concerned that there is a charge on you statement that you didn't approve?
Just call the company and tell them that it is a fraudulent charge and then
_its their problem_. If nothing else, this easily makes credit cards worth the
time it takes to manage them. After this, we have the easy record of all
transactions, cash back, convenience, safety from the fact that you don't have
a giant wad of cash with you, and last but not least, a credit history which
can be used to reduce interest rates on long term loans.

Seriously, this anti-debt attitude is in general ridiculous. Is excessive and
badly-managed debt bad? Absolutely, its one of the worst situations to be in
but there is a simple way to avoid it: manage your finances. Swearing off all
debt is foolish and inefficient.

~~~
swilliams
Keep in mind the context of the link. It's Merlin Mann posting a screenshot of
Dave Ramsey's site. Mann isn't anti-credit card, he is pointing out that
Ramsey does the rare act of taking an unpopular position, yet follows through
on it completely, even to the point of potential lost revenue.

He's pointing out Ramsey's integrity here, not the position.

~~~
ntoshev
Whoever Dave Ramsey is, his integrity is not Hacker News. That's why the
comments here tend to focus on his point, not on his celebrity status.

------
RobertL
Anyone who doesn't take credit cards is "nuts". This is total nonsense.

