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Credit card debt in the US has grown to significant proportions, and now renowned investor Warren Buffett has some advice for Americans. Buffett is urging credit cardholders to avoid using them as piggy banks they have to raid.

Americans should stop using credit cards as piggy banks

In recent years, credit card interest rates have risen relative to the federal funds rate. The CEO and Chairman of Berkshire Hathaway indicated that these rates are increasing because of competition and loss potential that has increased significantly. Because of this increase, Buffett thinks that people should stop using the cards as piggy banks for raiding.

He recalled of woman that had to go and see him sometimes back regarding what she should do with some cash she had come upon. Buffett said that the woman asked him what she should do, but he asked her what she owed on her credit card. After she indicated that she owed X amount, the legendary investor told her to do what she ought to do. The woman was paying an interest rate of around 18%.

Buffett says that paying off credit card debt is better than any investment

Currently, the average interest rate on credit cards for current accounts is almost 15%. Buffett explains that he was appalled about the 18% interest, and according to him, if he owed cash at an interest rate for 18%, then the first thing he could do with any cash he got is to pay off the debt.

He added that he explained to the woman that paying the credit card debt was way better compared to any investment idea he could give. Unfortunately, this is not what the woman wanted to hear.

One of the most commonly used financial products in the US is credit cards, with over 170 million holdings at least one or multiple cards. According to the Consumer Financial Protection Bureau report of 2019, total credit card debt by the end of 2018 was around $900 billion. Experian indicates that, on average, consumers owed credit card balances of around $6,200.