Dave Ramsey Is Dead Wrong About the Best Way to Avoid Paying Credit Card Interest

Credit cards charge high interest rates. That's a fact. And, you don't want to end up paying interest on your cards as this can cause you several financial issues. You'll make all your purchases costlier if you pay interest, and will drain your checking account with monthly payments.

To make sure you never pay interest, finance expert Dave Ramsey suggests simply not having a credit card. But, that's actually a really bad move. Here's why. 

Ramsey's recommendation for avoiding credit card interest

When it comes to avoiding credit card interest, Dave Ramsey is clear on his preferred approach. 

"The best way to avoid paying credit card interest is to pay off your credit card and then cut it up! Better yet -- don't have a credit card to begin with," he suggests. Rather than using a credit card, Ramsey believes you should pay cash for all purchases by using your debit card linked to your bank account. 

Here's what you should do instead of listening to Ramsey 

It's true that if you don't have a credit card, you aren't going to get hit with interest charges on it. Obviously, a creditor can't make you pay interest if you aren't using its cards at all.

But, giving up on credit cards entirely just to avoid interest charges is often the wrong move to make. You'd be passing up all of the benefits of credit cards just because you don't trust yourself to avoid the one major downside -- even though the downside is easily avoidable in other ways.

See, you will not pay $1 in credit card interest if you pay off your card balance in full when it's due. You only are charged interest if you carry a balance beyond your statement period. If you can limit the spending on your card to ensure you can pay it off in full when the bill comes, creditors aren't going to get any interest payments from you at all -- you'll only be paying off the amount you spent. 

Credit cards can actually pay you

This means there's no cost to using credit cards if you use them wisely, and there's a lot of upside to them. Credit cards can allow you to earn rewards, which you could cash in on things like free trips or even literal cash (in the case of a cash back card). When you make payments, they are also reported to the credit reporting agencies so you can earn a good credit score, which in turn will make a mortgage, car loan payment, or auto insurance payment cheaper. 

The best way to avoid credit card interest is to get a card and pay it off in full. If you can be responsible enough to limit your spending on your card, try to use it for as many purchases as possible to maximize your rewards and make sure your full payment is sent in before the statement due date. 

If you don't trust yourself to do that, you can still get a card to use for fixed monthly expenses (like your internet bill) and then set up autopay for that amount while leaving the card at home and not using it for other things (so you can still earn some rewards and build credit). 

Taking this approach is a far better option than following Ramsey's advice to steer clear of cards for good.