Warren Buffet & Mike Cuban on Credit Cards
Updated: Mar 19, 2020
The following is an article “Warren Buffet & Mike Cuban on Credit Cards” by Marc Primo.
If you were to ask two billionaires from different generations what their advice would be to fresh graduates about to step into the real world, they would both tell you the same thing: “Avoid falling into debt”.
The problem with the ‘D’ word
What makes falling into debt so dangerous is the fact that it hinders financial progress and security. Extra earnings that could be used for savings, investments, and living expenses end up in the back burner—paying for something already acquired rather than something that one could benefit from in the future, such as ROI from stocks.
As Warren Buffet acknowledged during a 2004 annual meeting with the Berkshire Hathaway conglomerate he heads, living beyond one’s means is very tempting and understandable but not a very good idea. And nothing accounts for more individual debt than a seemingly innocuous piece of plastic—a credit card.
Convenience or curse?
There’s no doubt that credit cards come with their own set of pros. First of all, they’re convenient. Plastic is a great substitute for having to carry cash around at all times to make payments, only to end up with loose change weighing down on your pockets or your purse. Second, using credit cards come with rewards. The more you spend, the bigger the reward. Last but not least, assuming you are not delinquent with your payments, they improve your credit score—something that will be considered when you take out your first mortgage, for instance.
But for many, this is all easier said than done. It takes an incredible amount of discipline to use a credit card responsibly. First, it’s easy to get carried away and rack up a huge bill, thinking you are only making small purchases. Remember, these “small purchases” all add up and before you know it, the debt monster is bigger than you imagined. Worst of all are the interest rates you pay credit card companies when you fail to pay on time or in full—oftentimes at least 15%!
Keeping your debt in check
To be realistic, not everyone, for various reasons, has the power to be debt-free. If you must carry a credit card, Mark Cuban believes that paying off all debt is the best investment anyone can make. That way, all income can be used for present and future investments, rather than past expenses that will do nothing to improve your bottom line.
Plan ahead. Know the interest rate your credit card company charges and if you are unable to pay in full in the next billing cycle, avoid paying just the minimum balance required and pay off as much as you can.
Most importantly, stop using your credit card until the debt is fully paid. That way, the outstanding balance will diminish rather than continue to increase with interest during each billing cycle. And before you know it, you’ll be debt-free again.