I actually do like most of his plan.
You must understand this in his language:
"Dave, I like using credit so I can earn interest on my money" - Dave says this is inconsequential: the reason he says this is inconsequential is this. The money you are earning in a month in your bank account is probably paying per month at a maximum %5 a year or .279% every twenty days (grace period) or 0.4109% every 30 day grace period.
Studies have shown that when you use a credit card even when you PIF you spend 12-18% more than you would if you paid cash. Because it hurts to use cash.
So let's say you have $10000k in an account earning interest in the 30 day cycle you would earn $41.10, say your average spending when paying cash is $1000, then the studies show you pay $1120 to $1180 when you use your credit card. If you are getting back a 3% reward on the total then you are getting back $35.40 on the $1180. So you think you have made money $35.40 + $41.10 = $76.50. Not bad, but you spent $180 more than you normally would therefore you lost $103.50. (if you have $10K in an account earning interest most people don't!
I hate to defend his theory but truly if you work the numbers you see where he is coming from. He didn't come up with this either a British Firm did a study and concluded:
Adding a $30 expense too a $637 credit card bill makes the $30 expense seem smaller. Grouping transactions on a credit card bill makes the size of individual expenditures seem smaller, which increases spending.
~ Thinking about the cost of a purchase while consuming or using it can lower the pleasure gained from the purchase. Credit cards block this by disassociating the payment from the consumption - in other words, you don’t feel the pain of paying for something while using it if you use your credit card.
~ This works the other way as well: the pain of paying can be cushioned by thinking about the benefits of the purchase. (This is why it’s easier to put “things” on our credit cards instead of “experiences” - while we’re paying off our credit card, we can think of all the enjoyment we’re still getting from our iPods, HD TVs, and that cute little robot vacuum cleaner.)
~ Credit cards provide the most “decoupling” of payment and transaction out of all the payment methods. (In other words, you buy now and pay later, and so act of buying and paying become “decoupled” in your mind.)
Credit cards do this in a number of ways:
* The increased period of time between when you make the purchase and when you pay the bill.
* Grouping many different transactions into one bill.
* A great diversity in the types of transactions can also reduce coupling - so if you buy gadgets, food, gas, and a range of other things on your card, it will reduce coupling for all those purchases. (REWARDS CARDS)
* You don’t see actual money leaving your hand, you just write your signature on a piece of paper or on a little screen.
* People generally have a low recall of what they’ve paid for with their credit card.
Now with that being said, I am not a cash person. I have always preferred the debit card. I actually write down every credit card transaction in my transaction register (for my checking account). Tedious yes, but I would do it with my debit card, therefore I do it with my credit card.
I personally do know a millionaire who pays cash for LARGE purchases, real estate, cars etc. But everyday expenses she puts on her credit card--FOR THE MILES! She flies back and forth to Florida first class because she whips out her card for EVERYTHING!---so I know at least one millionaire who doesn't think this is STUPID!
Really he has a plan for credit, it is called an emergency fund.
Personally his plan may be over the top, but look at the savings rate in our country-it's negative. Look at the financial mess we are in. In just the last year consumers charged $2.2 trillion on credit cards. Let's face it, many do not PIF. That is where playing with snakes comes in. When are you bound to mess up? Job loss, hospitalization, death. Any number of things could cause this.
I have given his book to many friends. It has simple spreadsheets and is very user friendly.
I tend to agree mostly with his advice. It is simple and honest. He believes in responsibility. If you bought it pay for it.
I personally am not a broke nerd. However, I am not a millionaire either. Now I am not going to give up my credit cards, but then again I never used cash in the first place. So to me if I was losing it, I was already losing it. Might as well get something for what I was already losing!
OK, now that I wrote novel I am done.