Legendary investor Warren Buffett had some advice for the millions of Americans with credit card debt.
Buffett recalled that a woman had come to see him some time ago — a friend of his — to ask what she should do with some money she had just come into.
“She said what should I do with it? And I said: What do you owe on your credit card?” Buffett recalled. “And she said, well I owe X. And I said, what you should do — I don’t know what interest rate she was paying but … it was something like 18%.”
According to WalletHub, the average credit card interest rate is around 15% for existing accounts.
“I don’t know how to make 18%,” Buffett added. “If I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off.”
Because paying it off is “gonna be way better than any investment idea that I’ve got,” he stressed. “And that wasn’t what she wanted to hear.”
Credit cards are the most frequently used financial product in America, with 60% of consumers — nearly 170 million — holding one, or even multiple cards. By the end of 2018, total credit card balances were around $900 billion, according to an August 2019 report by the Consumer Financial Protection Bureau.
Consumers on average owed about $6,200 in credit card debt, according to Experian.
“It just doesn’t make sense — you can’t go through life on money at those rates and be better off,” Buffett said. “I encourage everybody … that the first thing they do … [is not] paying even 12% to anybody… pay that off.”
Aarthi is a reporter for Yahoo Finance covering consumer finance and higher education. Follow her on Twitter @aarthiswami.