Should You Pay Off Your Credit Card Balance? Here's What Warren Buffett Think

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

Key points

  • Many consumers end up carrying credit card balances for different reasons.
  • Warren Buffett thinks paying off high-interest debts is one of the most important moves you can make.

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

No matter why you’ve landed in credit card debt, it’s a good idea to pay off your balance as soon as you can. And the reason boils down to not throwing money away on interest.

In fact, investing giant Warren Buffett is a huge advocate of paying off credit cards as quickly as possible. If you have an opportunity to chip away at your debt, it’s best to do so — even if that means not investing the funds you have available.

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 hand-picking the right stocks, he’s managed to accumulate a net worth of $117 billion.

But as savvy an investor as Buffett is, even he acknowledges that the returns he’s able to generate in his portfolio may not be as high as the interest rates imposed by credit card companies. In fact, a couple of years ago, Buffett relayed a story of a friend who came into money but also had credit card debt she was paying 18% interest on. Buffett’s advice? Pay off that balance and don’t invest.

Even though Buffett has, in his day, enjoyed incredible returns in his investment portfolio, he felt it was more prudent to pay down those credit cards than to try and invest that money in the hopes of snagging a higher return. In fact, the broad stock market has, over the past several decades, delivered an average annual 10.5% return. But that pales in comparison to the 18% interest — or more — credit cards can charge.

Get out of debt quickly

If you owe money on your credit cards, it pays to take Buffett’s advice and try to shed that debt as quickly as you can. One option to look at is consolidating your debt via a balance transfer.

Many balance transfer offers come with a 0% introductory APR. By snagging 0% interest for a period of time, you can help yourself get caught up on your debt in the hopes of wiping out your balance sooner.

Of course, once you do that balance transfer, you’ll need to take steps to free up cash to pay your debt off. That could mean cutting back on spending, boosting 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 come into any money — say, a tax refund — use that windfall to whittle down your balance rather than invest it. Once you’re free of costly credit card debt, you can — and should — look at 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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