Credit cards may be popular, but are they a good choice?
- Credit cards can be a useful financial tool.
- As someone who struggled with credit card debt earlier in life, Mark Cuban has some solid advice on how to use credit cards.
You’d think someone as wealthy as Shark Tank personality Mark Cuban would have little to no experience with credit card debt. But really, there was a period in Cuban’s life where he got himself into a hole.
Of course, this was when Cuban was younger and clearly didn’t have the wealth he enjoys today. But the experience has prompted Cuban to warn consumers about the dangers of credit cards.
But does that mean you should cut up your credit cards and commit to never using them again? Not necessarily.
The right way to use your credit cards
Some financial experts, like Dave Ramsey, believe that credit cards should be avoided at all costs. Mark Cuban doesn’t think consumers should go to that extreme. Rather, he thinks consumers should simply pay off their credit cards every month and avoid carrying a balance, or quickly pay off balances they’ve already built up.
The problem with credit cards is that they charge very high interest rates. And so even a small balance can turn into a large debt over time.
Also, even if you make the minimum payments on your credit card after building up a balance, you could still end up hurting your credit score by increasing your credit utilization ratio. That, in turn, could make it harder to qualify for a healthy type of loan, like a mortgage. It could also make it harder to get approved to rent a house, even if you’re not borrowing money in that case.
Good credit card rules to follow
Credit cards, when managed well, can improve your financial picture. Specifically, they can help you build credit and increase your savings by rewarding you with cash back on your purchases.
However, if you are going to use credit cards, it pays to follow these key rules:
- Do your best to only collect expenses you can afford before your bills are due.
- Don’t use credit cards as your emergency fund.
- Always read the fine print in your credit card agreements
- Don’t charge extra just to rack up rewards
- Pay cash when there’s a big discount (like at the gas station, where you can pay much less per gallon to fill up with cash)
Ultimately, Mark Cuban doesn’t believe consumers should throw away their credit cards and promise never to use them again. But if you’ve struggled with credit card debt in the past, and you really don’t trust yourself to spend within your limits, then you may want to set up a no credit card policy.
Likewise, if, despite your best efforts, you’re really bad at avoiding impulse purchases, then buying with credit cards may not be your best option. If you only bring enough cash to cover your planned purchases, you will eliminate impulse buying.
Credit cards can be a useful financial tool. But if you’re going to charge them for expenses, follow these rules so they help your finances instead of hurting them.
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