Credit card debts have remained a matter of concern since their emergence in the early 1920s. Although, this concept of short-term loans enables the consumers to borrow money from revolving accounts in their crucial times, paying back the debt accompanied by an interest becomes a curse.
According to a recent report rolled by Federal Reserve System, the credit card balances have shown an increase of $19.8 billion raising the overall credit card balances to a whopping $1.037 trillion. The overall outstanding consumer debt has reached $4.41 trillion following the seasonal adjustment in November 2021.
Although, the credit card debts are now whittling down following the financial improvements after the pandemic, are the credit cards really worth it? Is it a good practice to use Credit Cards? Well, financial experts are not really in the favor of these short-term loans. Here is what Warren Buffett, the renowned investor has to say about the Credit Cards and debts associated with them.
The Golden Advice From Legendary Investor Warren Buffett About Credit Card Debts
Warren Buffett has not liked the concept of credit cards from the very beginning. For him, credit cards are too costly, thus shouldn’t be used unless someone’s facing a tough time.
To pose attention to how important it is to pay off the credit card debts, Warren once quoted a story of his friend who approached him for a bit of investment advice.
When Warren’s friend told him about the money they have got and wanted to invest it somewhere, the first comment made by Warren was whether or not his friend uses a credit card. The person was using a credit card and was paying 18% interest on it.
Warren responded saying, if I got an opportunity to invest money in a profitable venture and on the other hand I had a credit card debt at 18% interest, I would rather pay off the debt without even thinking about the investment idea.
He further revealed that by paying off the outstanding debt a person can save more on interest than they can earn on any investment. Warren Buffet also added that nobody can go through their lives by borrowing money that also comes with an interest rate. It is better to spend less than borrowing money on interest.
Several other finance experts have revealed that putting credit card debts on hold can have serious consequences. The interest will keep adding up and if not paid off in a timely manner, it would be impossible for the borrower to pay it off on their average salary.
Considering how worrisome the credit debts can be, financial advisors suggest people pay off the balance using their savings to get out of the red light. This will help them start over again with fewer bills thus cutting off the likelihood of falling into the credit card debt traps.
According to the world’s most experienced and leading investor, making full payments at the end of the month is the only solution to live a debt-free life.
Expert-Revealed Disadvantages Of Using A Credit Card
Even though people around the world are in love with credit cards, credit card debts hold the highest percentage of consumer debt. But, what factors make the usage of credit cards a bad deal? Here are some of the expert-revealed drawbacks of using a credit card.
- The foremost reason why financial experts suggest people avoid using credit cards is because it’s a costly deal. Even though it funds you while you run out of funds, the interest applied on the amount you spend makes your purchases even more expensive. For example, if you have bought yourself a mobile phone for $1100 with an 18% interest you will end up paying $1298. So, the interest that applies to your borrowed money is quite expensive.
Here, what’s worth noting is “if you don’t have enough to pay for a product, simply delay its purchase (if it isn’t a necessity) instead of paying more for it. Try to spend less than what you earn.
Also, if you are holding your unpaid balances for a longer period, the Annual Percentage Rate may also swell adding to your debt finances.
- Leading financial experts have revealed that credit discourages self-control. Most credit card users have agreed with the fact that they cannot exercise self-control when it comes to money. People also reveal that it is quite difficult to put restraints on spending, once you have started using a credit card; there is no end to it. Even if you are paying your credit card bills early, the debt cycle is never going to end.
- People who use a credit card often do not follow a budget. They simply keep paying for things they consider cheap but they land in trouble in the end. Therefore, if you are really willing to use a credit card despite all these drawbacks, you must consider making a budget.
Create a list of all your expenses and align them with your budget. If you are exceeding the budget mentioned on your spending plan, stop there and then. Make sure your expenses are aligned with your budgeting.
- The poor credit score is another factor that makes it difficult for people to cope with their credit card debts. As your outstanding balance keeps adding up each day, you will have to pay unexpected increases on your bills. Credit Score is a worrisome factor mainly related to insurance bills.
- Besides the interest rates, credit card debt can erode your mental peace. The debt sometimes can even affect your relationships negatively. Thus, it is important to understand that, it is far better than spending less to hold a credit card debt.
How To Pay Off Credit Card Debts?
The simplest yet working trick to pay off your credit card debts is, ‘start paying your debt as soon as possible. The longer you will hold your debts the longer it may take you to pay off the debt, and it will be costlier as well.
While paying off your credit card debts, make sure you are not relying on smaller installments because it will take longer while the interest rates will keep multiplying. Try to give in heavy installments because you will have to pay less interest overall.
If you are unable to pay off your debt, surely you haven’t addressed your spending lately. Review your expenses each day because the only way to get rid of debts is to cut off your expenses and put more effort to pay off debt.
The most important tip you need to follow is, “DO NOT USE YOUR CREDIT CARD UNTIL THE OUTSTANDING BALANCE REACHES ZERO”. While you are making efforts to pay off your debts and on the other hand you are using your credit card, the credit card debt cycle will keep revolving and it would be difficult for you to pay it off.
The Takeaway Points
The final tips to overcome your credit card debts are:
- Make sure you are paying your balances each month.
- Manage your spending wisely
- Assess all the risks related to using a credit card while you don’t earn enough to pay back.
- Don’t buy until it isn’t a necessity.
Related: Best Financial Advice From Martin Lewis for Consumers in 2022
