- 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 about using them.
Credit cards may be popular -- but are they a wise choice?
You'd think someone as wealthy as Shark Tank personality Mark Cuban would have little to no experience with credit card debt. But actually, there was a period in Cuban's life when he dug himself into a hole.
Granted, this was when Cuban was younger and clearly didn't have the wealth he enjoys today. But the experience has prompted Cuban to caution consumers about the dangers of credit cards.
But does that mean you need to cut your credit cards up and pledge to never use them again? Not necessarily.
The right way to use your credit cards
Some financial experts, like Dave Ramsey, think credit cards should just plain be avoided at all costs. Mark Cuban doesn't think consumers need to 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 accumulated.
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.
What’s more, even if you make your minimum credit card payments after racking up a balance, you could still end up damaging your credit score by driving your credit utilization ratio upward. That could, in turn, make it harder to qualify for a healthy type of loan, like a mortgage. It could also make it difficult to get approved to rent a home -- even though you're not asking to borrow any money in that case.
Good credit card rules to follow
Credit cards, when managed well, can actually improve your financial picture. Specifically, they can help you build credit and boost your savings by rewarding you with cash back on your purchases.
If you're going to use credit cards, though, it pays to follow these key rules:
- Do your best to only charge expenses you can pay off by the time your bills come due
- Don't use credit cards as your emergency fund
- Always read the fine print on your credit card agreements
- Don't make extra charges just to rack up rewards
- Pay with cash when there's a large discount to be had (such as 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 vow to never 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 make a policy to not use credit cards.
Similarly, if, despite your best efforts, you're really bad at avoiding impulse purchases, then shopping with credit cards may not be your best move. 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 expenses on them, stick to these rules so they help your finances instead of hurting them.
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