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Dear Dave,

I’ve been an avid follower of yours for as long as I can remember. I remember you for your common-sense, no-nonsense personal finance advice that gives the average person a realistic pathway to wealth in their lifetime. For that, I and so many others are eternally grateful.

But there are chapters in the proverbial Dave Ramsey bible that seemingly stray from this tenet of helping the average person generate wealth, and instead they’re blamed for living their best possible life in a financially sound way.

I’m speaking of course about credit card points and airline miles, and your infamous shunning of them both. The goal of personal finance is to help you live the best life you can afford, which is what you’ve been helping people do your whole career. Credit cards enable people, who otherwise would never be able to afford it, to fly in first class and stay at 5 star hotels for almost free. Yet you aren’t happy for them. You don’t help them do it the right way. You scold them. All while hiding behind the word “debt” as an excuse to lie about the benefits of credit cards and never have a real conversation about their pros and cons. It’s time someone addressed it.

I’m happy to have this conversation with you, but for now, this letter will have to do.

Here is a transcript of a video with your thoughts on credit cards and airline miles that you posted on your Instagram page a few months back:

“I’ve met with thousands and thousands of millionaires, I’ve never met one who said “You know, Dave, I made my money with my airline miles. All those Discover points broke me through financially.” Hey, let’s do the math, okay? You know how you get $1,000 back from Discover? You spend $100,000. How does spending $100,000 to get $1,000 back ever make you rich!? Where did you take your math class!? Really!? This is absolutely ludicrous. But everyone’s counting their dadgum points, and everybody’s trying to figure out some way I’m beatin’ up on Chase. Chase is kicking your butt! Their building’s bigger than yours and their furniture’s nicer than yours. You aught to have a clue by now.”

Let’s dissect this sentence by sentence and go over every way you’re misleading your listeners and personally disappointing the piece of me that looks up to you:

“I’ve met with thousands and thousands of millionaires, I’ve never met one who said ‘You know, Dave, I made my money with my airline miles.’”

This is the biggest false premise you make, and is clearly a strawman argument. Nobody has ever claimed that credit cards or airline miles will make you a millionaire. That’s not the goal. So the fact that they haven’t made anyone a millionaire is an irrelevant fact, proving nothing other than the fact that you don’t understand why people like the points and miles that credit cards earn.

Those in the points community almost exclusively never carry a balance on their credit cards, and (with few exceptions in the “manufactured spend” community, which for the sake of this letter, I’m not treating as part of the average credit card points community) don’t change their spending at all based on how much credit they have access to or how many credit cards they have. If you know a specific person does not look at credit cards in this healthy way, then by all means, tell that person not to use credit cards, just like you’d tell an alcoholic not to have a glass of wine. But that doesn’t mean we go full prohibition either.

This means the credit card user’s goal is not to become a millionaire from points and miles - their goal is to earn extra money that they otherwise wouldn’t have earned on spending they’re already doing, by using this piece of plastic instead of a different piece of plastic. That’s it. No one is selling a get rich quick vision.

Given that you can earn several percent back on each purchase by using my preferred piece of plastic instead of yours, your advice here is effectively recommending that all of your followers pay 2%+ more for everything than those who don’t follow your advice.

I don’t need to tell you that 2% of the average American’s income ($60,000 in Q4 ‘23), invested over 40 years in the S&P 500 is more than $638,500 that you’re actively advising your followers not to save. It won’t make you a millionaire, but it could make you 64% of one, and that’s far from the most valuable way to earn and use points.

But you don’t seem to think the rewards can be nearly that high:

“’All those Discover points broke me through financially.’ Hey, let’s do the math, okay? You know how you get $1,000 back from Discover? You spend $100,000. How does spending $100,000 to get $1,000 back ever make you rich!? Where did you take your math class!? Really!?”

As with the previous sentence, the only thing you’re proving here, in two separate ways, is that you have no idea how credit card rewards work. Or worse, you know how they work, but you’re lying about it.

1. You aren’t buying $1,000 for $100,000. Not a single person in the world is telling anyone to do that. It’s $1,000 you otherwise wouldn’t have had, after spending $100,000 you would’ve spent otherwise.

2. Nobody who understands credit card rewards would only earn $1,000 on $100,000 of spending.

At a very basic level, you’d at least be using a 2% back card like the Citi® Double Cash Card and earn $2,000 instead of $1,000. However, with that much spending, someone interested in credit cards might open several cards. Perhaps some of that spending is on supermarkets, and some is on dining, and some is on travel, all categories which you can easily find cards that earn 3x back or more on. Not to mention the welcome offers from these cards can add up to thousands of dollars of value on their own, on top of the value you get from spending on the card.

Not to mention the value of some of these points is far greater than $0.01 per point valuation that you’re implying. When redeemed properly, each point can be worth up to $0.02 to $0.10 cents each, leading to way more value than you assumed. On my honeymoon, for example, my wife and I redeemed my points for economy class airfare, saving us more than $1,000, and a 5 star hotel we’d never be able to afford on our own. We ended up averaging around $0.04 per point in value on the trip.

Many of those points came from my spending on the Capital One Venture X Rewards Credit Card, which gives you 2X miles on all eligible purchases. That 2X back valued at $0.04 per point ended up being 8% cash back in value for us, and helped us go on a honeymoon that we wouldn’t have been able to afford without it. Once accounting for the fact that 75,000 of those points came from a welcome offer, which was on top of the 2X back, I got closer to 20% cash back based on the value we redeemed them for.

For those of us in the credit card world, these numbers aren’t shocking or unbelievable: they’re common. The average person, without too much effort, can earn up to 8% back in terms of the value they get if the points are redeemed for maximum value. It’s even more common to get $0.02 per point in value, which would earn 4% back in value. Accounting for the occasional welcome offer and common enough point redemption values, it’s not unheard of to get 10% back in value on your spending over the course of an entire year with credit cards.

Assuming someone spends $4,000 per month, this isn’t spending $100,000 to earn $1,000. This is spending $0 extra to earn $5,000 extra. And that value isn’t considered taxable income, so it’s really worth more than that.

By now my case should be clear: for those who are responsible and who put in a small amount of effort, you can effectively increase your income substantially, tax free, with credit card points.

And if you don’t want to put even that much effort, you’re not alone, because I felt the exact same way, which is why I cofounded Pointwise, an app that analyzes your spending and preferences to tell you which credit cards to get and when to get them in order to maximize your rewards.

But we still haven’t addressed your final point, which proves beyond a reasonable doubt that you have no idea how the credit card industry works:

“This is absolutely ludicrous. But everyone’s counting their dadgum points, and everybody’s trying to figure out some way I’m beatin’ up on Chase. Chase is kicking your butt! Their building’s bigger than yours and their furniture’s nicer than yours. You aught to have a clue by now.”

To start with this massive logical fallacy - your buildings are way bigger than my one-bedroom apartment. Your furniture is way nicer than mine. Your private jet is.. wait.. I don’t have a private jet. By your logic, following your advice is kicking my butt!

Back to the credit card industry: the way the industry works actually can sustainably make everyone money. Believe it or not, that’s why the industry exists! My AP econ teacher, Dr. Arnold Kling, had a favorite quote: “Price discrimination explains everything.” When it comes to points and miles, he’s absolutely right.

Airlines and hotels often have more space than they’re able to sell at full price, so they need a way to offer discounted pricing to some people, so they don’t earn $0 from any airplane seat or hotel room. They also don’t want to miss out on last-minute passengers or guests that are willing to pay full price, or perhaps a premium to it for the last minute convenience!

So they price discriminate. They offer higher prices to those willing to pay them in cash, and they offer lower prices, quoted in points and miles, to customers like us who are looking for a deal. That’s how the airlines make money here.

We, the customers, make money because we’re getting a better deal than the cash price for the same product.

Chase, or any other issuer, also makes money by facilitating the deal. The credit card issuers promise the airlines and hotel chains that they’ll purchase minimum amounts of points from them, in exchange for which the gives the credit card issuer gets a bulk discount on the points from the hotel or airline. This means that the value you’re getting from your points can often equal more than the amount of transaction fees your purchases generated the credit card issuer, but the credit card issuer is still making money! Not because you were irresponsible and didn’t pay it off, not because of late fees or any other fees, but because they’re paying way less for the points than you or I would pay for them.

The credit card world, when done correctly, really can be a huge win for everyone, and it’s such a shame that you’re so strung up on the word “debt” that you’re willing to advise everyone who listens to you to leave thousands of dollars on the table every single year.

Best,

Ken

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Editors Note: The opinions expressed in this article are solely the author's and do not reflect the views of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved, or endorsed by any of the organizations mentioned.