Dave Says

By Dave Ramsey
Author, The Total Money Makeover

CBN.com – Financial guru Dave Ramsey answers questions about wise financial decision-making.

Credit Card Con

Dear Dave,

Why are you against the responsible use of credit cards? My wife and I use credit cards for everything, and have paid them off every month for the last few years. By using them we have received two $4,000 rebates on cars, we have the equivalent of 10 round-trip air trips saved up and we receive annual cash rebates. It also makes record keeping easier, and provides meaningful coverage like extended warranties.

- Ira via email

Dear Ira,

The phrase “responsible use of credit cards” is an oxymoron. Let’s look at those car rebates. The GM card offers a five percent rebate, so if you got $8,000 worth of rebates that means you had to spend $160,000 to buy two new cars that lost about $6,000 in value the day you drove them off the lot! You call this wise or responsible? It is neither, sir. You’ve been playing with snakes, you’ve been bitten and you didn’t even realize it.

Studies conducted by Dunn & Bradstreet show that people who use credit cards instead of cash spend an average of 12 to 18 percent more. With these great perks you mentioned, you’re getting back somewhere between one and five percent depending on the situation, but you’re spending two or three times more than usual to make it happen! I don’t call that wise or responsible.

So yes, I’m against what you call the responsible use of credit cards. You’re not going to beat these multi-billion dollar companies at their own game. It’s their job to figure out new and better ways to separate you from your money. If you think you’re going to win against them, you’re naïve.

- Dave

What is Replacement Insurance?

Dear Dave,

I just spoke with my insurance agent, and he said there are many different definitions of replacement cost insurance. My policy reads that they’ll pay the full amount of the policy plus 20 percent if my house burns down. What is your definition of replacement cost insurance?
Mark via email

Dear Mark,

This guy is wrong. There aren’t multiple definitions for replacement cost insurance.
Replacement cost is an insurance term, and the definition on the test an insurance agent must take is that your home is replaced regardless of the face amount of the policy. If your policy says $50,000 and it takes $75,000 to replace your home, then they must replace your home. It’s that simple.

Now, keep in mind that an insurance company will not intentionally under-insure your property with replacement cost insurance. They’re not stupid. They’ll do an analysis on the home looking at the square footage, the neighborhood, amenities, and all these issues will be addressed when you take out a home insurance policy.

But don’t forget your responsibility, either, Mark. If you bought your home for $100,000 and over the years it appreciates to $150,000, that’s great. But if you forget to update your policy and the house burns down, you’d get $120,000 and that’s it. That is NOT “replacement.”

- Dave

Do Companies Owe People Perks?

Dear Dave,

I’ve been self-employed all my life, and I work my tail off every day. The other day I heard some guys complaining about their jobs and saying that their company “owed” them all kinds of perks. Being a small-business owner, what is your stance on this?

- John in Houston, TX

Dear John,

Here’s the deal, an employer owes employees fair wages and the respect that goes to someone who will devote themselves to the job and do it well. But if you don’t like something to the point that all you’re going to do is cry and complain about it, then take a hike a find a job you like. That’s what I’d do.

At my company, I take my leadership role seriously in terms of being fair to the team and taking care of them. I mean, I couldn’t do all this stuff by myself. But I’ve also seen some companies out there that have earned this attitude they get from employees because they’ve mistreated their workers. They lie to them, cheat them and worse.

It’s all really simple, John. If you love what you’re doing and you’re treated with fairness, dignity and respect, it’s a winning situation for the employer AND the employee. That’s what I try to do here. If you hate your job or your company doesn’t treat you fairly, go find another job. The company “owes” you nothing in terms of perks.

- Dave

* You can see all of Dave’s columns at www.davesays.org.