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Mark Cuban didn’t have his riches handed to him.
The brash 59-year-old billionaire, an investor on ABC’s “Shark Tank” and owner of the NBA’s Dallas Mavericks, built his fortune by founding and selling a couple of tech companies.
Since then, he’s invested shrewdly in an array of ventures. And those investments have paid off. Today, his net worth is estimated at $3.7 billion.
Mark Cuban’s wise credit card debt advice
When it comes to the types of investments that non-billionaires like you and I should make, Cuban’s advice is simple:
“Probably the best investment you can make is paying off your credit cards, paying off whatever debt you have,” Cuban recently told an interviewer.
Cuban went on to say that the return on your investment in paying off credit cards and other debt is better than if you were to buy stocks or real estate.
Ripped apart by credit cards
The Dallas maverick came to that conclusion the hard way. Years ago, he’d have credit cards regularly “ripped up” — presumably because a merchant was told Cuban was over well over his credit limit, seriously late in making payments or both.
“I would charge something and think I would be able to pay it off and then not be able to. I can’t tell you how many credit cards I had ripped up,” Cuban told Money magazine in 2017.
“But over time, what I’ve learned is using a credit card is OK if you pay it off at the end of the month. Just recognize that the 18% or 20% or 30% you’re paying in credit card debt is going to cost you a lot more than you could ever earn anywhere else.”
The importance of slashing your debt
Cuban hits on one of the keys to paying off credit cards. To avoid piling up debt, you should aim to pay your credit card balances in full and on time every month. Why is that so important?
- Paying off your credit cards in full and on time every month means you’re avoiding interest. For instance, if you have a 16.99% APR on a credit card and don’t pay it off in full every month, the credit card company will stick you with interest charges.
- Paying off your credit cards in full and on time every month boosts your credit score. Your payment history makes up 35% of a credit score produced by FICO, the major credit-scoring company. And your credit utilization ratio — how much your credit limits are versus how much credit card debt you have — accounts for 30% of a FICO score.
Getting rid of your debt
If you do have credit card debt and can’t pay it off all at one time, keep in mind that it likely will take awhile to wipe it out. But if you put your mind to it, you can reduce or eliminate your credit card debt. These are two approaches that can help:
- The snowball method. Through this method, you focus on paying off the smallest credit card debts first and working your way up to the largest ones. Once the smallest debt is gone, you put the money that you’d been spending on that debt toward the next smallest debt. This method quickly gives you a sense of accomplishment.
- The avalanche method. Using this method, you concentrate on paying off the debt with the highest APR (annual percentage rate), then moving down to the debt with the lowest APR. After making the minimum payments on each card, you shift any extra money in your debt-repayment budget to the card with the highest APR, regardless of the balance you’re carrying on that card.
Whichever method you choose, remember that you won’t make any progress if you keep running up credit card charges.
While no one can guarantee that paying off your credit card debt will make you a billionaire like Mark Cuban, it can make you feel like a million bucks — and can give you more financial freedom and flexibility. It’s one of the best investments you can make in yourself and your future.