The Exception to Dave Ramsey’s Debt Snowball Method: Rewards Credit Cards

While I definitely admire Dave Ramsey‘s debt reduction approach (clearly, seeing as it’s my latest undertaking to get debt-free), I also appreciate customization — the kind of customization that trusty Yogurtlands across the country afford its customers: The freedom to put a combination of various toppings on my frozen yogurt that suits my individual palate.

The Dave Ramsey debt snowball method, which is step two of his seven Baby Steps, denounces the continued use of credit cards. Tacking on additional retail expenses to your credit line, admittedly, is not a great start to obliterating your debt. However, I find that paying for recurring expenses can be financially beneficial with the use of rewards credit cards.

Bending the Debt Snowball Method Rules

Before risking wagging fingers of disapproval, let me clarify in saying that I’m not advocating unrestricted use of high-interest, non-cash back credit cards. My personal circumstance makes using rewards credit cards logical and financially profitable.

My commute to work Monday through Friday is 64 miles round-trip — factor in the nightmare of L.A. stop-and-go traffic and the fact that a great deal of my route goes straight through the downtown area, you can imagine how much money I spend on gas alone. For those fortunate enough not know what these implications mean, it comes out to approximately $350 per month in fuel costs.

Now if I had adhered to Dave Ramsey’s no credit card use rule, I would have simply been out hundreds of dollars each month. Unlike typical retail credit card charges that I could easily do without (e.g. giant TV, new running shoes, latest iPhone model, etc.), there’s no negotiating when it comes to filling up my gas tank. Essentially, it’s my livelihood. But I still wanted something else in return, to ease the sting of spending what’s nearly a second car payment on gasoline.

I came across the Pentagon Federal Credit Union’s (PenFed) Platinum Rewards VISA credit card and have never again questioned my choice to continue using my credit card. The PenFed credit card is a rewards card that has one of the most competitive point systems I’ve seen compared to other competing rewards credit cards. The promotion being offered at the time piqued my interest:

  • 5% cash back on gas purchases
  • 3% cash back on grocery purchases
  • 1% cash back on all other purchases
  • Automatic 20,000 bonus points to start
  • Automatic 5,000 for the first $1,000 balance within three months
With my weekly gas and supermarket runs, I was easily able to put $1,000 on the account to earn the promotion’s entire bonus, which I would have spent anyway using my debit card. However, this time around, I earned $250 in cash back thanks to my rewards credit card. After just over three months of use I was able to cash in $350 in Amazon gift cards for Christmas gifts — relieving me of a significant chunk of out-of-pocket expenses.
But I had to balance the gratification of credit card rewards with the potential hazard credit card use presents to my debt goal.

How to Use Rewards Credit Cards Wisely

The sole reason rewards credit cards like my PenFed Rewards VISA work in my favor is because I commit myself to three rules.

#1. Commit to 1-2 Specific Purchase Categories

While I could technically get cash back on purchases outside of gasoline and groceries, I refuse to use it when at a restaurant or for other retail purchases. A $20 charge here and there will easily evade my radar, and I can already foresee my spending heading off the charts if I don’t restrict myself to some degree.

The risk isn’t worth the 1 percent cash back return, so I’ll keep to purchases, like gas and groceries in my case, that yield higher cash back without compromising my savings.

#2. Pay Off Transactions Immediately

When I say “immediately,” I don’t mean in two weeks. or even next week. I mean as soon as you get home to process the transaction. This definitely takes perseverance, and it can be difficult to stay consistent, but ensuring that you don’t let charges linger on the account prevents you from letting balances roll over into the next month and accruing interest against your credit card.

#3. Set Your Maximum Balance

There have been a couple times I neglected to follow through on Number Two above. That’s why I use this third security measure to keep me from letting my debt snowball melt away: Establish a maximum balance you can reasonably pay off each month. Even if you don’t get around to paying off your purchases the same day, you can at least pay off your purchases in the same month to avoid finance charges. If I find that my balance is creeping too close to my maximum monthly allowance, I know to pull back on grocery costs in the remaining weeks, for example.

As Dave Ramsey regularly reminds debt snowball followers, modifying behaviors is key to achieving success. Look yourself in the mirror and have an honest conversation about whether you really have the willpower to restrict your credit card use before putting this exception into action.

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