Two big financial gurus agree on the dangers of credit card debt. But they’re only partly right.
- Mark Cuban and Dave Ramsey think credit cards are a big enemy to becoming rich.
- Carrying high interest debt can seriously hurt your finances.
- However, as long as you don’t carry a balance, there can be benefits to using a credit card.
Mark Cuban and Dave Ramsey agree wholeheartedly on one piece of wealth-building advice: Get rid of your credit cards. The Shark Tank judge and best-selling author stressed the dangers of paying by plastic in a recent Instagram reel. “If you use your credit cards, you do not want to be rich,” Cuban said. “That’s my favorite line, I tell it to people all the time.”
Why Cuban and Ramsey think you should burn your credit cards
If you carry a credit card debt, there’s a good chance you’re paying a high rate of interest on it. That flies in the face of most wealth-building strategies. If you want to become rich, one tried-and-tested route is to build up assets that will generate income over time. That might involve buying stocks or other investments. Historically the S&P 500 has averaged annual returns of around 10%, and if you invest for the long term, this can really add up.
But if you carry credit card debt, paying it off could earn you better returns. “People ask me where’s 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’re paying 15% or 20% in interest, if you pay that down, you just earned 15% or 20%.”
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There’s another advantage to pay down debt. It means you don’t tie up a percentage of your income on minimum payments and interest payments. Dave 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 largest wealth-building tool, which is your income.”
Credit cards aren’t always bad
Those are strong words from two top financial gurus. And they are right that carrying a balance on your credit card is like tying a heavy weight around your dreams of becoming rich. But there can be advantages to using a credit card, with one big caveat. You need to pay off your balance in full at the end of each cycle.
Here are some of the perks your credit card may offer, assuming you can avoid high interest debt:
- You can earn rewards on your spending.
- You may qualify for purchase protection, travel insurance, and other coverage.
- You might get additional discounts or free shipping.
What stops you building wealth is the debt, not the card itself. If you pay interest on your balance, it will quickly eradicate any value you get from the perks. Ramsey and Cuban’s advice to get rid of your cards only makes sense if you don’t trust yourself not to run up a balance.
How to get out of credit card debt
It’s one thing to hear Cuban and Ramsey talk about why paying off your debt is important. It’s quite 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 working out what you spend versus how much you earn. The bigger you can make the gap between the two, the more money you’ll have to pay off what you owe. Look for areas where you can cut back on non-essential spending, and see if there are any ways you can increase your income. Perhaps you can take on extra hours at work, or take on a side hustle while the job market is still strong. Maybe you have items in the house that you could sell. Even some relatively drastic short-term saving or earning measures could help. The longer you carry credit card debt, the more interest you’ll accrue, so put any extra money toward your balances.
2. Make a plan
Once you know how much you can realistically put toward your debt each month, check out our guide to paying down credit card debt for more information on individual strategies. You prioritize the debt with the smallest balance and get a lift when you pay it down. Or you might tackle the balance that charges the highest interest rate first
You might also look for ways to consolidate the debt. This can simplify your finances and potentially also reduce the interest rate. If you go this route, you still need to focus on paying down the debt. Otherwise you could wind up with more problems further down the road.
3. Avoid taking on more debt
Times are tough, and with the holiday season coming up, it is tempting to use your credit card to pay for things. Try to resist. Finding ways to live within your means is the only real way to get out of debt and stay debt free.
If you are carrying a credit card debt, the most important thing you can do is to recognize the problem and figure out how to tackle it. Set yourself debt repayment targets and celebrate when you meet them. Depending on your financial situation, it could take time, but if you break it down into manageable chunks you’ll be on your way to shaking off that credit card.
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