Dave Ramsey Says This Money Mistake Leads to 'More Debt and Stress.' Is He Right?

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  • Dave Ramsey says many people use their credit cards for emergencies, but he recommends saving up an emergency fund instead.
  • Adding interest charges to an unplanned expense is a recipe for financial pain. 
  • You could rely on a 0% APR credit card if you have no other options, but only if you can pay off the balance before interest is charged. 

If you're making this mistake, you may want to change course now. 

Most people make at least some mistakes with their money, but you can avoid a lot of these errors in advance if you know what the common pitfalls are.

According to finance expert Dave Ramsey, there's one particular mistake many people make that ends up making a bad situation even worse. Here's what it is, as well as some advice on whether this error is really as bad as Ramsey says.

This is the money mistake Ramsey warns about

According to Ramsey, the big mistake many people make with their money relates to how they prepare for surprise expenses. That error: Planning to put emergency expenses on a credit card

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"If getting rid of those credit cards freaks you out because you use them 'for emergencies,' then it's time to come up with a new plan," Ramsey said. "Borrowing money for emergencies only leads to more debt and stress."

Instead of using a credit card when unexpected costs come along, Ramsey instead urges putting money in a high-yield savings account for emergencies. He advises starting with a $1,000 emergency fund, and then eventually saving up enough to cover between three and six months of living expenses in your emergency savings after you've paid off all your debts. 

Should you listen to Ramsey?

Ramsey is wrong when he says you should get rid of your credit cards, as they can be a useful tool that enables you to earn rewards and build credit.

But, he's correct that credit cards are not good for emergencies. If you experience a bump in the road like a drop in income or a surprise expense, the last thing you want to do is be forced to go into credit card debt to deal with the situation.  

If you didn't have the cash to cover the emergency in the first place, chances are good you wouldn't be able to pay off the bill before the statement comes. This would mean you'd get stuck paying interest on your credit cards. Adding interest charges makes these costs you weren't prepared for even more expensive -- which isn't what you need when you already couldn't afford them.  

You'd also be stuck with that monthly credit card payment going forward, which also makes your situation worse. You'd have an additional monthly payment when you were already unable to pay for the surprise cost. 

Adding this financial stress on top of the stress of whatever emergency you had isn't going to make your situation any better -- and it's more likely to make you unable to afford other surprise expenses going forward, thanks to the fact you'll still be paying off your old bills. 

So, if you can, you should absolutely prioritize saving an emergency fund so you don't find yourself in this situation. 

If this isn't possible, though, then a card with a 0% introductory APR could be a good option if you can pay it off before interest comes due, because at least that way you can borrow to cover your emergency without incurring interest expenses. This shouldn't be your first option for emergencies, but in a pinch, it's not the worst one despite what Ramsey might think. 

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