Credit Cards

Do you have to pay off your credit card balance? This is what Warren Buffett thinks

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Buffett’s credit card advice is worth taking seriously.

Key points

  • Many consumers end up carrying credit card balances for a variety of reasons.
  • Warren Buffett believes that paying off high-interest debt is one of the most important moves you can make.

Some people end up with a balance on their credit cards because they simply lose track of how much they’re spending. Others end up with credit card debt because they run into unplanned bills and don’t have enough money saved to cover them.

No matter why you’ve gotten into credit card debt, it’s a good idea to pay off your balance as soon as you can. And the reason boils down to not wasting money on interest.

In fact, investment giant Warren Buffett is a big advocate of paying off credit cards as quickly as possible. If he has the opportunity to reduce his debt, he had better do it, even if it means not investing the funds he has available.

Why Carrying a Credit Card Balance Never Pays

Warren Buffett is a prime example of how the right approach to investing can deliver impressive results. Case in point: By choosing the right stocks, he managed to amass a net worth of $117 billion.

But despite being a savvy investor like Buffett, even he acknowledges that the returns he can generate on his portfolio may not be as high as the interest rates imposed by credit card companies. In fact, a couple of years ago, Buffett told the story of a friend who made money but also had credit card debt that he was paying 18% interest on. Buffett’s advice? Pay that balance and do not invest.

Although Buffett, in his day, enjoyed incredible returns on his investment portfolio, he felt it was wiser to pay off those credit cards than to try to invest that money in the hope of a higher return. In fact, the broad stock market has, over the last few decades, generated an average annual return of 10.5%. But that pales in comparison to the 18% interest or more that credit cards can charge.

Get out of debt fast

If you owe money on your credit cards, it’s worth following Buffett’s advice and trying to get rid of that debt as quickly as you can. One option to consider is consolidating your debt through a balance transfer.

Many balance transfer offers come with a 0% introductory APR. By earning 0% interest over a period of time, you can help yourself catch up on your debt in hopes of paying off your balance sooner.

Of course, once you make that balance transfer, you’ll need to take steps to free up cash to pay off your debt. That could mean cutting expenses, increasing your income with a second job, or a combination of both.

But either way, it pays to prioritize paying off your credit cards. If you get some money, say a tax refund, use that windfall to reduce your balance instead of investing it. Once you’re free of costly credit card debt, you can—and should—consider investing your money, whether it’s in stocks or other assets. Ultimately, the sooner you pay off your credit cards, the less money you’ll end up throwing away.

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