Credit cards may be popular, but are they a wise choice?
- Credit cards can be a useful financial tool.
- As someone who struggled with credit card debt earlier in life, Mark Cuban has some great advice on using them.
You would think that someone as rich as shark tank Personality Mark Cuban reportedly has little to no experience with credit card debt. But in fact, there was a period in Cuban’s life when he dug himself into a hole.
Granted, that was when Cuba was younger and clearly didn’t have the wealth it enjoys today. But the experience has prompted Cubans to warn consumers about the dangers of credit cards.
But does that mean you have to 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 simply be avoided at all costs. Mark Cuban doesn’t think consumers should go to that extreme. Instead, he thinks consumers should just pay off their credit cards each month and avoid carrying a balance — or quickly pay off balances they’ve already accrued.
The problem with credit cards is that they charge very high interest rates. So even a small balance can turn into a large debt over time.
Also, even if you make your minimum credit card payments after building up a balance, you could still end up damaging your credit score by increasing your credit utilization rate. This, in turn, could make it harder to qualify for a sound type of loan, like a mortgage. It could also make it difficult to get approved to rent a house, even if you’re not asking to borrow money in this case.
Good credit card rules to follow
Credit cards, when handled well, can improve your financial situation. Specifically, they can help you build credit and increase your savings by rewarding you with cash back on your purchases.
If you’re going to use credit cards, however, it pays to follow these key rules:
- Do your best to only charge expenses that you can pay by the time your bills come due
- Don’t use credit cards as emergency funds
- Always read the fine print on your credit card agreements
- Don’t overcharge just to rack up rewards
- Pay cash when there’s a big discount to be had (like at the gas station, where you might pay a lot less per gallon for a cash fill-up)
Ultimately, Mark Cuban doesn’t think consumers should ditch their credit cards and swear never to use them again. But if you’ve ever struggled with credit card debt and really don’t trust yourself to spend within your limits, you might want to adopt a policy of not using a credit card.
Likewise, if, despite your best efforts, you’re really bad at avoiding impulse purchases, then buying with credit cards might not be your best decision. If you only bring enough cash with you to cover your planned purchases, you’ll take impulse buys off the table.
Credit cards can be a useful financial tool. But if you’re going to charge them expenses, follow these rules so they help your finances instead of hurting them.
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