American entrepreneur, investor and panelist on ABC’s Shark Tank, Mark Cuban, has warned against using your credit card if getting rich is your goal. Here’s why Cuban feels this way.
During an appearance on financial guru Dave Ramsey’s show, The Ramsey Show, the two financial experts discussed the money-saving equation of income coming in and going out.
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While discussing building wealth, Cuban told Ramsey, “If you’re using your credit cards, you don’t want to be rich.”
Ramsey and Cuban laughed together after Cuban’s comment, with Ramsey revealing that people will often share this comment with outrage or disbelief. He exclaimed, “Look what Cuban said!” But despite laughing, Ramsey agrees, echoing Cuban’s comment: “So cut up your credit cards. If you use a credit card, you don’t want to get rich.” Ramsey adds, “I like that line.” Cuban agrees and reveals that it is his favorite line and that he tells it to people all the time.
In response, Cuban explained that people would ask where they would invest instead. He reveals that the “best place to invest is to pay off all your credit cards and burn them.” You need to do this because when you use your credit card, you know the return. For example, Cuban said if you pay 15 to 20% interest on your credit card, once you pay that off, you just made 15 to 20%.
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Ramsey completely agrees with Cuban’s advice that you shouldn’t build wealth with a credit card. Ramsey reveals to listeners how to build wealth and warns listeners that he has told people this about 100 times. He also notes that a Forbes survey shows that “75% of rich people – not your broke brother-in-law with an opinion – but rich people say ‘get out of debt and stay out of debt.'”
Cuban reveals that high interest charges on credit cards keep people in debt and prevent them from building wealth. Cuban aversion to credit cards is nothing new. In 2014, Cuban told Business Insider that “credit cards are the worst investment you can make.” According to Cuban, his best personal advice came from his father, who told him not to use credit cards.
Ramsey echoes Cuban’s thoughts on credit cards, writing in a blog post, “Life is better without credit cards.” Ramsey believes people don’t need a credit card if they want to build an emergency savings fund and pay for everything in cash.
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However, Cuban and Ramsey’s advice may not work for many Americans, as using credit cards is a way for them to build a credit history. Colin Palfrey, chief marketing officer at Crediful, explains why: “For many average Americans, buying a home is an important part of their wealth-building plans, and not being able to build a credit history will make it harder to get good get rates. “
So if you are going to use your credit card, you must do so responsibly. For example, using your credit card to build a credit score means paying your credit card bills on time since payment history is calculated into your credit score. Cuban revealed that he wishes he had followed this advice when he was younger, saying he should have “paid off my cards every 30 days.”
Another way to use credit cards responsibly is to not charge more than you can afford and pay your bills in full each month. This means you don’t have to make minimum payments, which just add daily interest to your credit card bills.
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This article, “If You’re Using Your Credit Card, You Don’t Want To Get Rich,” Mark Cuban Warns On The Dave Ramsey Show originally appeared on Benzinga.com
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