Two great financial gurus agree on the dangers of credit card debt. But they are only partly right.
- Mark Cuban and Dave Ramsey think credit cards are a great enemy to getting rich.
- Having high interest debt can seriously damage your finances.
- However, as long as you don’t have a balance, there may be advantages to using a credit card.
Marc Cuban and Dave Ramsey wholeheartedly agree on one tip for building wealth: get rid of your credit cards. The shark tank judge and best-selling author highlighted the dangers of plastic payment in a recent Instagram reel. “If you use your credit cards, you don’t want to be rich,” Cuban said. “It’s my favorite phrase, I tell it to people all the time.”
Why Cuban and Ramsey Think You Should Burn Your Credit Cards
If you have credit card debt, chances are you are paying a high interest rate. It goes against most wealth creation strategies. If you want to get rich, a proven path is to build assets that will generate income over time. It could involve buy stocks or other investments. Historically, the S&P 500 has averaged annual returns of around 10%, and if you’re investing for the long term, it can really add up.
But if you have credit card debt, paying it off could earn you better returns. “People ask me where is the best place to invest,” Cuban told Ramsey. “The best place to invest is to pay off all your credit cards and burn them.” He continues: “If you pay 15% or 20% interest, if you pay that, you just earned 15% or 20%.”
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There is another benefit to paying off debt. This means that you don’t allocate a percentage of your income to minimum payments and interest payments. David Ramsey said 75% of wealthy people say you need to get out of debt and stay out of debt. Why? “Because it gives you power over your greatest wealth-building tool, which is your income.”
Credit cards aren’t always bad
These are strong words from two great financial gurus. And they’re right that carrying a balance on your credit card is like tying a heavy weight around your dreams of getting rich. But there can be advantages to using a credit card, with one big caveat. You must pay your balance in full at the end of each cycle.
Here are some of the benefit your credit card can offer, assuming you can avoid high-interest debt:
- You can earn rewards on your spending.
- You may be eligible for purchase protection, travel insurance and other coverages.
- You might get additional discounts or free shipping.
What’s stopping you from building wealth is debt, not the card itself. If you pay interest on your balance, it will quickly eliminate any value you get from the benefits. Ramsey and Cuban’s tips for getting rid of your cards only make sense if you don’t trust yourself to have no balance.
How to get out of credit card debt
It’s one thing to hear Cuban and Ramsey explain why pay off your debt is important. It’s another to actually do it. The good news? You can make it happen, even in the midst of a cost of living crisis.
1. Understand your finances
Start by calculating what you spend versus what you earn. The more you can widen the gap between the two, the more money you will have to pay off what you owe. Look for areas where you can reduce non-essential expenses and see if there are ways to increase your income. You may be able to work overtime or take a side hustle while the labor market is still strong. Perhaps you have items in the house that you could sell. Even some relatively drastic savings or short-term gain measures could help. The more credit card debt you carry, the more interest you will accrue, so put extra money on your balances.
2. Make a plan
Once you know how much you can reasonably spend on your debt each month, check out our guide to pay off credit card debt for more information on individual strategies. You prioritize the debt with the smallest balance and get a boost when you pay it off. Or you can tackle the balance that charges the highest interest rate first
You can also look for ways to consolidate debt. This can simplify your finances and potentially lower the interest rate. If you choose this path, you should always focus on paying off the debt. Otherwise, you could end up with more problems further down the road.
3. Avoid taking on more debt
Times are tough and with the holiday season approaching, it’s tempting to use your credit card to pay for your purchases. Try to resist. Finding ways to live within your means is the only real way to get out of debt and stay debt free.
At the end of the line
If you have credit card debt, the most important thing you can do is recognize the problem and figure out how to fix it. Set debt repayment goals and celebrate when you reach them. Depending on your financial situation, this may take time, but if you break it down into manageable chunks, you’ll be well on your way to getting rid of that credit card.
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