During his annual general meeting, ace investor Warren Buffet advises credit card not be used as a piggy bank. This he iterated while providing outlook for the credit card industry when responding to one of the queries.
This is when the world is facing such hard times due to coronavirus infection and is confronting job loss, salary cuts as well as delay.
Then he recalls his discussion with one of his women friend who sought his advice on what to do with the money she owns. Then Warren Buffet asked if she owes anything to the credit card and the woman was paying a whopping 18% interest on it. "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.
Further in the conversation woman asked Buffet what she should let her daughter do who has $1000-$2000. Then he suggest that the best deal should be that if she lends the money to her (Buffet'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 Warren Buffet really means from the Advice which Needs Credit holder's Attention?
People should not live on high credit card dues and in India the interest rate can go as high as 36% so it shall be at best to clear all outstanding debt on credit card at first.
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. And so a right expense management strategy needs to be inculcated as relying on credit cards to a heavy extent is nothing but a false sense of financial security.