Warren Buffett Warns That While Many Enjoy Credit Cards, Owing $10K At 18% Could Mean Lifelong Struggles

Buffett’s Take on Credit Cards

In a world where a simple click can get you a peloton and a smoothie costs $17, it’s easy to see why credit cards are so popular among Americans. But when it comes to the billionaire investor Warren Buffett, his stance is quite different.

Back in 1999 at a Nebraska Forum, the CEO of Berkshire Hathaway advised students who wanted to get ahead financially to steer clear of credit cards altogether. “I’ll just forget,” he mentioned, casually dismissing the notion.

This viewpoint might strike some as outdated, especially coming from someone with billions in the bank. But Buffett wasn’t preaching morality; he was focused on the math. “We’re involved in various businesses that issue credit cards. Americans love them,” he noted, adding that accumulating debt through these cards can hinder financial progress.

The core issue he highlighted was interest rates. Buffett explained that carrying a balance incurs around 18% to 20% in interest. Borrowing at such rates isn’t just treading water; it’s like sinking. “You can make a lot of money lending it at 18 or 20%,” he pointed out.

To make his point clearer, he laid out a scenario. If someone finds themselves $10,000 in debt at high interest, he remarked, “You will never come out of it.” This wasn’t just a theoretical situation for him; he shared that he had saved $10,000 by the time he graduated, which allowed him to grow financially.

However, as one carries debt—especially at high interest rates—the numbers can turn against them pretty quickly. It’s not just a minor delay; it can become a trap.

This seemingly manageable balance could become a long-term burden. With expenses such as bills, kids, home repairs, and car troubles piling up, it’s easy to find oneself struggling just to break even.

Buffett leaned on a piece of wisdom from his colleague Charlie Munger, emphasizing, “All I want to know is that I’m not going there because I’m going to die.” He advised thinking similarly about finances—avoid situations that lead to needless expenses.

Buffett acknowledges the numerous letters he receives daily from individuals facing dire financial issues. In most cases, the root cause is either severe health problems or credit card debt. He referred to the latter as a problem that can be avoided.

He recounted instances where individuals have claimed to be bankrupt, yet they still feel trapped, unable to access their money’s true potential. “That problem is avoidable,” he said. “Credit card debt is something you bring upon yourself.”

This is why Buffett advocates for not digging financial holes in the first place. “It’s easier to stay out of trouble than to get out of it,” he told the students. “If you have significant credit card debt, you’ll likely be dealing with it your whole life.”

His guidance isn’t about being perfect or making piles of money; it’s more about positioning oneself financially. You want your money working for you, generating interest, instead of the other way around. Even a little bit of upfront strategy can make a significant difference.

“If you can’t pay for it, don’t buy it,” Buffett advised. “Maintain a position where you can afford anything.” While Visa’s marketing team might not appreciate this advice, it’s undoubtedly something many Americans could benefit from hearing.