Should you pay off your credit card balance? Here’s what Warren Buffett thinks

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It pays to take Buffett’s credit card advice to heart.


Key points

  • Many consumers end up with credit card balances for different reasons.
  • Warren Buffett thinks paying off high-interest debt is one of the most important things you can do.

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

Whatever the reason you got into credit card debt, it’s a good idea to pay off your balance as soon as possible. And the reason comes down to not wasting money on interest.

In fact, investment giant Warren Buffett is a strong advocate for paying off credit cards as quickly as possible. If you have the ability to reduce your debt, it’s best to do so, even if it means not investing the funds you have.

Why Carrying a Credit Card Balance Never Pays

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

But as savvy an investor as Buffett is, even he recognizes that the returns he is able to generate in his portfolio may not be as high as the interest rates charged by credit card companies. In fact, a few years ago, Buffett told the story of a friend who had money but also had credit card debt on which she was paying 18% interest. Buffett’s advice? Repay this balance and do not invest.

Even though Buffett, in his day, enjoyed incredible returns in his investment portfolio, he felt it was safer to pay off those credit cards than to try to invest that money in hopes of get a higher yield. In fact, the stock market as a whole has, over the past few decades, produced an average annual return of 10.5%. But that has nothing to do with the 18% interest – or more – that credit cards can charge.

Get out of debt fast

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

Many balance transfer offers come with an introductory APR of 0%. By getting a 0% interest rate for a while, you can help yourself catch up on your debt in hopes of clearing your balance sooner.

Of course, once you complete this balance transfer, you will need to take steps to free up money to pay off your debt. This could mean reducing your 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 make money – say a tax refund – use that windfall to reduce your balance rather than invest it. Once you’re out of expensive credit card debt, you can – and should – consider investing your money, whether 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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