Warren Buffett’s advice to credit card users: Avoid using them as piggy bank2 min read . Updated: 04 May 2020, 03:00 PM IST
- In the annual general meeting of Berkshire Hathaway annual Warren Buffett advised people to pay off their credit card dues to avoid paying huge interest
Legendary investor Warren Buffett advised people to avoid using credit cards as a piggy bank. He was replying to one of the questions on the credit card industry outlook during the Berkshire Hathaway's annual general meeting.
The advice comes at time when people globally are facing salary cuts, job losses and delay in salaries amid the covid-19-triggered pandemic.
Recalling a discussion with one of his woman friends, who came for his advice on what to do with the money she had. Warren Buffett said, he asked her what she owes to her credit card.
The interest rate the woman was paying on her credit card was around 18%, recalled Buffett. “I don’t know how to make 18%. If I owe money with 18% interest, the first thing I would do with any money I have is to pay it (credit card due). It’s gonna be way better than any investment idea I have got," he said.
Buffet further recalled that later on in the conversation when the lady asked about what she should let her daughter do with the $1,000-2,000 she had, he advised her to let her daughter lend the money to you (Buffett’s friend). “Have her lend it to you. If you are willing to pay 18%, she is not gonna find a better deal. " said the investor.
“You can’t go through life, borrowing money at those rates and be better off. So, I encourage everybody and it's contrary to Berkshire's interest in certain cases and in the world with love in the credit cards... I would suggest to anybody that the first thing they do in life is that they can get something else later on, but don’t be paying even 12% to anybody just pay that off…," said Buffett.
“I would have trouble if we were paying 12% for money whatever it might be… you won’t see Berkshire paying that," he added further.
WHAT THIS MEANS FOR YOU?
Buffett’s advice is for people who live with high credit card dues. People should avoid overuse of credit cards and use it judiciously as they carry high interest rates. In India, the interest on credit cards can go up to 36%. Therefore, it is not sustainable for anyone to continue living on such high interest rates, it is always better to pay off the credit card dues as soon as possible.
“I see many people using their credit cards thinking they can pay for it later on. This leads to a false sense of financial security and thus leading to no control over expenses. These days many companies are propagating paying rent through credit cards. Essentially, overuse of cards means that right savings and expense management habits are not being built by the individual," said Mrin Agarwal, financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra.
“One needs to live life on savings and not credit! You can delay payments through the card, but finally you need your savings to pay for it," she added.