Expert: Treat Credit Cards Like Grinch

Dave Ramsey: Steer Clear Of Debt For Holiday Spending

(CBS)  Christmas is six weeks away.

And if you plan to put your holiday purchases on credit cards, Dave Ramsey suggests you think about how long it will take to pay them off.

The financial author and radio host pointed out on The Early Show Tuesday that plenty of people get into a lot of credit card trouble this time of year.

He doesn't think anyone should put anything on a credit card, ever.

Last holiday season, the average credit card user put $626 worth of holiday cheer on his/her cards. Seventeen percent of shoppers racked up tabs of $1,000 or more. The National Retail Foundation says at least a third of all shoppers this season plan to use only their credit cards to make purchases.

Many folks take months to pay off their holiday bills and, thanks to interest, wind up spending more than they ever bargained for over the holidays. According to the American Bankers Association, most people say they'll be able to pay off their holiday charges in two or three months, but it actually takes them six.

Ramsey says, if you can't afford the holiday gifts you want to buy, you need to come up with cheaper alternatives. Get creative. It's the thought that counts! If that's upsetting, Ramsey asserts, too bad -- you won't care when you're debt free!

Letters for Ramsey pour into The Early Show, and he responded to a few Tuesday; all concern credit card debt.

CATHY FROM OHIO writes, "We are $52,000 in credit card debt. Should we get a home equity to reduce the debt? Things are getting really tight, especially with Christmas coming. Please help."

Face facts now: Christmas is going to be limited for you this year, Ramsey said. Don't fool yourself into thinking you can afford things you can't pay for; it's not worth it. Cut up those cards so you're not tempted to use them!

A home equity loan isn't the answer to your problems. It's an appealing solution to many folks because the interest rate on them is frequently much lower than on credit card rates. However, Ramsey said, 88 percent of those who consolidate debt that way don't change their spending habits, and go into even more debt.

Instead, anyone in this situation needs to start paying off his or her credit card bills one at a time, starting with the smallest balance. Even if you manage to pay off a small debt of $200, you'll be amazed by how empowered you'll feel. It's like going a diet, Ramsey explained: That day you lose those first two pounds is a big one, and it encourages you to keep going for more!

DEAN FROM NEW MEXICO writes, "Dave, I am close to being debt-free. The issue is my wife. She spends money like Congress and, despite my every effort, continues to do so. She recently bought NFL Sunday ticket on Dish to the tune of $250. This is a wasted expense. Her response is that she works and earns money and her money is hers to do what she wants to with. How can I get her to knock this crap off? Help!"

Ramsey's answer may have surprised some viewers: He said the husband probably owes the wife an apology! His guess is that this guy is a super tightwad and is more than a bit controlling when it comes to the family finances. His wife is probably engaging in some rebellious spending right now. She feels abused by his process for getting out of debt. There's also a chance that she's a bit of a princess and simply wants what she wants.

Either way, this couple will never get and stay out of debt unless both spouses are on board. If one of the two doesn't want to cooperate, they may have a marriage problem, not a money problem. According to Ramsey, Dean needs to try to lighten up a bit when it comes to saving and spending money. He also needs to persuade his wife that her feelings on this are important, and she does have a real vote in how they attack their debt.

JIM writes, "I'm no longer using credit cards, but am unsure what to do with the accounts they are connected to. Do I go ahead and cancel those accounts, or just leave them dormant? Just wondering if doing one or the other will benefit my credit score when I go to apply for a mortgage. Thanks!"

Yea! Ramsey is very excited for this guy -- he's seen the light and has decided to do away with his cards altogether. As soon as possible, shut your cards down completely. Simply having credit cards doesn't help your FICO score; you have to actually be making payments. If you leave the card accounts open, you're an accident waiting to happen -- you might fall back on the cards yourself, or an identity thief may go to town on the dormant accounts.

Ramsey doesn't worship at the alter of FICO, and thinks we all worry too much about our scores. It's possible to obtain a mortgage and a good rate if you have a low or non-existent score; you simply need to find someone who does manual underwriting.

If you're ready to shut down your credit accounts, you need to call AND write a letter to your card company. Ask for written confirmation that they account has indeed closed.

[Carters6802]

For anyone reading this, it is in response to eggy1620's comment. Yes, you can pay cash for a house. My wife and I have a annual income of $88,000 a year, which is above the average household income, but very obtainable for many Americans. If you pay off your debt and have no payments, like Dave says, you can live off of $38,000 a year for three and a half years and at the end of that time would have $175,000 for a house....In only 3.5 years....not 30 like with a mortgage that you pay interest on. If you make less it will take 5, 10 or 15 years, but is better and cheaper than a loan, oh and when you own the house outright there is no fear of foreclosure.

[ampsanne]

Eggy I hope your not referring to me. I can see borrowing from a bank for a car or house. I''m talking about inmaterial things. One time I stood in line while some young mother was paying for $7.00 worth of candy with a credit card. Another time a lady was paying for a greeting card with a credit card. Now really does that make any sense?

[eggy1620]

This is the same guy who says you should not borrow for anything, including cars and houses!!! Just pay cash. Who the heII has $180K in cash laying around to buy a house outright???!!!!

[ampsanne]

I don''t know how people can run up their credit cards like they do. They should learn to live within their means. That''s so stupid like paying for a dead horse. Whatever you buy is probably all worn out by the time you get it paid off. If they want something why don''t they save up for it, and save all the interest they''d have to pay out on a credit card. Gives you a satisfied feeling to pay cash for something, rather than being frustrated in getting those credit card bills every month.

[noloyalisti]

Not only should we not use our credit cards, we should significantly cut down on our spending and consumption. This is a good way to protest the corporate run government and really make a difference.

Our practices in this country are directly responsible for global warming, our failing economy and the fraudulent war on terror. Time to learn to use less like the rest of the civilized (and uncivilized) world.