Cuban told Business Insider in 2014 that he wished he knew when he was in his twenties “that credit cards are the worst investment you can make,” admitting that “I should have paid off my cards every 30 days.” . And, in a 2017 Inc. magazine interview, Cuban summed up his top personal finance tips in one sentence: “From my dad: don’t use credit cards.”
While Cuban’s advice assumes cardholders have a balance that earns interest, anyone can learn a thing or two from their credit card philosophy.
Below, CNBC Select takes a closer look at Cuban’s advice and what you need to know about the benefits of having (and using) a credit card.
Cuba’s credit card advice is classic
Credit cards charge noticeably high interest rates, and any balance you carry costs you more month after month.
On average, credit cards charge 16.43% interest, according to the most recent data from the Federal Reserve. This rate certainly exceeds any return you earn on your savings and investments. The average national interest rate on savings accounts is only 0.05%, according to the FDIC. Historically, the average return on long-term investments has hovered around 10% per year.
There’s no question that carrying a balance on your credit card from month to month can quickly drive up your debt. When you don’t immediately pay for your credit card purchases, you can earn interest on top of what you already owe, making it harder and more expensive to pay for everything. With record high credit card debt in the United States, this is a lesson many Americans are learning the hard way.
Are you paying interest on your credit card debt? Consider transferring your debt to a balance transfer credit card that offers a 0% interest introductory period so you can draw your principal straight away. The US bank’s Visa® Platinum card offers 0% for the first 20 billing cycles on balance transfers and purchases (after, 13.99% to 23.99% variable APR).
There are advantages to having and using a credit card
While Cuban recommends cutting your credit cards, there are some reasons you might want to ignore this advice. Credit cards can help you increase your credit, and if you use them wisely, you can even earn rewards, such as cash back, points, or miles, on your spending.
It’s important to establish a credit history early on, and credit cards can help you do that. A long, healthy credit history can help you achieve a good credit score. And good credit scores are key to being able to access better financial products, like auto loans, mortgages, and even small business loans, if you want to follow Cuban’s entrepreneurial lead.
The good news is, if you follow a few simple guidelines, you can successfully use a credit card and stay out of debt. You don’t have to use a credit card often to improve your credit score, you just need to use it responsibly.
Here are two tips for using a credit card:
- Pay your credit card bills every time. Your payment history is the most important factor in calculating your credit score.
- Don’t charge more than you can afford and pay your credit card bills in full every month. Credit card issuers make it easy to access by simply making the minimum payment, which is often 1% to 3% of your balance each month. While this seems convenient for your wallet, it becomes costly once issuers start adding daily interest to this balance.
While Cuban’s advice can protect you from debt, it could also prevent you from improving your credit score, which could have a long-term negative impact on your overall finances. Your best course of action is to keep your credit card usage in mind and spend within your means.
Learn more: The Top Reasons People Get In Debt On Their Credit Cards And How To Avoid Them, By An Equifax Expert
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Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of CNBC Select and have not been reviewed, endorsed or endorsed by any third party.