Credit cards: Billionaire Mark Cuban said that if you use your credit cards, you don’t want to be rich. What did he mean by this?
He told Dave Ramsey at latter’s show that the best place to invest is to pay off all your credit cards and burn them. If you’re paying 15 per cent or 20 per cent in interest, if you pay that down, you just earned 15 per cent or 20 per cent.
Does this mean that we should avoid using credit card at all? For some, it is the best advice but perhaps not for all. As they say – “you can’t put a square peg in a round holes” – the same way one piece of advice may work for some people, but not for everyone.
What lessons one can learn from Cuban’s advice?
I. Avoid unnecessary expenses: At the outset, it is important to remember that no needless expenses should be carried out by using a credit card. You must use a card only when it is absolutely essential. For instance, when you want to buy something that you can’t wait for.
Additionally, you should buy an item with the help of a card that you can otherwise also afford to buy.
II. Pay bill within the 45-day interest free period: A credit card is a good financial product only when you clear all the dues within 45 day interest free period. Once you miss this period, interest at the rate of 2-3 percent per month starts to accrue, leading to 24-36 percent a year.
III. Do not rely on minimum due payment: Another important point to remember is to not rely on the minimum due but to clear all the dues well in time. When you receive credit card bill, you have the option to either clear the bill in full or pay a small portion – say 5 percent.
When you pay the minimum due, the balance attracts interest from the date of transaction – not from the last date of bill payment.
IV. Credit utilisation: Another important feature to remember is keep credit utilisation below 30 percent. This is ideal for a good credit score. Apart from a healthy credit score, it also helps you in good financial position to not feel burdened by your bills and interest.
To sum up, using a credit card may have certain advantages but only if you use it with care and caution. Its unabated use can lead to overwhelmingly high bills because of high rate of interest.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
For all personal finance updates, visit here
About the Author
