Mark Cuban Insists 'Credit Cards Are Not Your Friend' And Proposes Taking Out A Personal Loan For Expenses Instead – Is This A Smart Move?

Mark Cuban, the outspoken billionaire entrepreneur, has a clear message, which he shared in a 2022 CNBC interview: "Credit cards are not your friend."

Cuban argues that relying on credit cards can lead to serious financial pitfalls, largely due to their notoriously high interest rates. As an alternative, he suggests that personal loans might be a better option for managing expenses. But is this advice universally applicable?

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Cuban's primary concern with credit cards is their steep interest rates. As of November 2024, the average credit card interest rate stood at 24.62%, with some cards charging as much as 36%, according to WalletHub. 

Balancing can quickly become costly, making it challenging to pay off debt. Cuban emphasizes that the compounding interest can be financially draining unless you can pay your balance in full each month.

In a 2014 appearance on the Dave Ramsey Show, Cuban explained, “The best place to invest is to pay off all your credit cards and burn them.” He further stated, “If you pay 15 or 20 percent interest and pay that down … you just earned 15 or 20 percent."

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In contrast, personal loans often come with lower interest rates. For borrowers with good credit scores between 690 and 719, the average personal loan interest rate is approximately 14.35%. Cuban points out that personal loans can provide the necessary funds at a more affordable rate for those with a solid credit history while still contributing to building credit.

Personal loans also offer structured repayment plans, typically with fixed monthly payments over a set term. This structure can make budgeting more predictable and help borrowers avoid the revolving debt cycle that credit cards can perpetuate.

While Cuban's perspective highlights the drawbacks of credit cards, other financial experts note that, when used responsibly, credit cards can offer significant benefits. They can be instrumental in building credit history, which is crucial for securing favorable terms on mortgages and auto loans. 

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Many credit cards provide rewards programs, purchase protections and other perks that personal loans do not offer.

Ted Rossman, a senior industry analyst at Bankrate.com, suggests to CNBC that personal loans are more appropriate for one-time necessary expenses, such as home improvements or consolidating high-interest debt. He cautions against using personal loans for discretionary spending, which can lead to further financial strain.

It's essential to recognize that credit cards and personal loans have their place in personal finance. The key is to understand your financial habits and needs:

• For Everyday Expenses, a credit card can be beneficial. It offers rewards and helps build credit if you can pay off your balance in full each month.
• A personal loan might be more suitable for larger One-Time Expenses, especially if it offers a lower interest rate and a structured repayment plan.

Ultimately, the decision between using a credit card or a personal loan should be based on your financial situation, spending habits and ability to manage debt responsibly. Cuban's advice highlights the potential dangers of credit card debt, but you'll want to consider all factors and choose the best option with your financial goals.

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