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Mark Cuban is well-known as the billionaire investor that has been featured on Shark Tank for many years, but he has also been successful in ways that go beyond what you may have seen on TV. However, just because Cuban is a billionaire today doesn't mean that he didn't make his share of financial mistakes along the way.
Using (misusing) credit cards is one of Cuban's biggest financial mistakes, as he has said several times. In fact, he has gone as far as telling people "If you use your credit cards, you do not want to be rich."
Of course, it's important to put this statement into context and clarify what Cuban is trying to convey. Here's a rundown of Cuban's credit card advice and what it could mean for you.
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Mark Cuban's credit card advice
In a nutshell, Cuban advises people to pay off their credit card debt as quickly as possible and then get rid of the cards.
As Cuban said when appearing as a guest on Dave Ramsey's show, "People ask me, 'where's the best place to invest?'," Cuban said. "The best place to invest is to pay off all your credit cards and burn them. Your credit card, you know what your return is. If you pay 15 or 20% interest, and pay that down, you just earned 15 or 20%."
Cuban's point is that you're unlikely to be able to build wealth by investing in the stock market or any other asset class while you have credit card debt.
Think of it this way. The S&P 500 has historically produced average returns of about 10% per year. If you earn these returns while paying 20% interest on a credit card balance, you're setting yourself up to lose money, even if your investments perform well.
Is he right?
To clarify, although Cuban tells people to "cut up your credit cards," his advice generally pertains to carrying a balance on credit cards. It isn't necessarily a bad idea to use credit cards and pay the balance off before it starts accumulating interest. In fact, Cuban even said in one of his interviews advising against credit cards that "I should have paid off my cards every 30 days."
In addition, it's well-documented that Cuban himself uses credit cards. He has shared that he has an American Express Centurion Card and that he uses it to make large purchases. And in a 2017 interview, Cuban said that "over time, what I've learned is using a credit card is OK if you pay it off at the end of the month."
The bottom line is that credit cards can be an excellent financial tool if used properly. Not only can you earn rewards for purchases you were going to make anyway, but during the 30-day period before the bill is due, your money is still in the bank earning interest. There are 0% intro APR offers available for as long as 21 months that can help you finance a larger purchase and pay no interest at all if you pay it off before the introductory period ends.
But as Cuban (rightly) cautions, paying credit card interest is rarely, if ever, a smart financial move. It's important to avoid it if your goal is to build as much wealth as possible.
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