Warren Buffett Says He’d Be Broke If He Did This Thing

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He makes a very good – and scary – point.

Key points

  • Warren Buffett is a savvy investor known for his frugal habits.
  • One habit saved him a ton of money, and it could save you a lot too.

When it comes to investing money, Warren Buffett clearly knows what he’s doing. Buffett is a multi-billionaire, and while his stock-picking prowess has been a big part of his success, another reason he’s so wealthy is his frugal streak.

Take his house, for example. Buffett bought his first home in 1958 for $31,500, and it has yet to grow — although he could clearly buy his own mansion (hell, he could easily buy an island if he wanted).

Another smart financial habit of Buffett is to live within his means. And that includes avoiding unhealthy debt. Buffett is not a fan of credit cards and has been known to advise consumers to avoid them altogether. Buffett even said that if he borrowed money at 18% or 20% — what credit cards typically charge — he would be broke. And that’s advice worth heeding.

The Dangers of Credit Card Debt

Credit cards can be a useful financial tool. It’s when consumers run up debt on their credit cards that things get tricky. As Buffett mentioned, credit cards typically charge 18% to 20% interest — sometimes more — on carried over balances. Now, if you’re an investment expert like Buffett, you could buy the right stocks and earn a return equal to or better than credit card interest rates. But most likely, having debt on a credit card will cost you money – and potentially a lot.

To put those credit card interest rates into context, you can currently sign a 30-year mortgage at around 6% interest, the highest mortgage rates in over a decade. But 6% is still considerably cheaper than 18% to 20%.

Likewise, while some personal loans charge interest rates in line with credit card rates, many also charge much lower rates. With good credit, you could get a personal loan at 6% or 7% interest.

That’s why it pays to follow Buffett’s advice and avoid carrying a credit card balance — or avoid credit cards altogether if you don’t trust yourself to only charge for the expenses you do. can pay monthly. Remember, the more money you waste on interest, the less you need to spend on other financial goals and the less you need to invest. And as Buffett attests, investing regularly is a great way to build a lot of wealth.

Should you cut up your credit cards?

If you’re serious about following Buffett’s advice, you might consider cutting up your credit cards to avoid the temptation. But canceling long-standing credit card accounts could actually hurt your credit score, making it harder to take out cheap loans.

So instead of cancelling, just put your existing credit cards in a safe place and reserve them only for emergencies (if needed). You’ll leave healthier borrowing options, like getting a mortgage, on the table. And while Buffett doesn’t encourage the use of credit cards, he is a big fan of getting a 30 year mortgage to finance a house.

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