Mark Cuban Says Doing This One Thing Beats Any Investment Before Retirement

Former Shark Tank personality Mark Cuban has made many investments, but the best one you can make before retirement isn't complicated at all. Just pay off your credit card balance, and you're already beating the S&P 500.

Cuban views it as a guaranteed return to avoid high APRs instead of letting the balance linger and hoping that your favorite stock does well. He called it "the best investment you can make." Find out how you can transform your savings.

Credit card APRs beat the S&P 500

Cuban's advice follows basic math. Credit cards have APRs that range from 20% to 30%, and you will almost never earn that type of return in the S&P 500. The famed index has only produced an annualized 14% return over the past 10 years.

That return isn't guaranteed, either. However, high interest will always accumulate on a credit card if you do not pay off your balance.

Debt is an emotional weight

Not only does debt cost you interest, but it's also an emotional weight that can make it more difficult to focus on your life and career. At the same time, paying off that credit card will give you more control over your finances.

The quality of an investment isn't just about what it does for your money. Some investments are great because they enhance your quality of life. Paying off credit card debt can be a great investment for your finances and lifestyle.

Social Security and withdrawals may not be enough in retirement

Some people push off paying off debt until they retire and start to collect Social Security, but Cuban isn't a fan of this money move. Social Security and 401(k) withdrawals may not be enough to make a meaningful impact on your principal.

Before paying the principal, you must first address interest, which will grow each day. Retirees have fewer options to pay off credit card debt if Social Security isn't enough.

Emergency expenses can turn small debt into big debt

Holding a stock and waiting for your next paycheck to pay off credit card debt sounds fine until something unexpected happens. Emergency expenses are a part of life, and they never announce themselves.

A sudden emergency cost can turn a small credit card balance into a big one. Not having credit card debt in the first place makes it easier to navigate surprises.

The sequence of returns risk can catch retirees by surprise

Not only are emergency expenses unpredictable, but stock market returns also fluctuate. Many investors underestimate the sequence of returns risk. If you are forced to withdraw from your 401(k) during a sharp market correction, you will have to sell more assets to cover the same debt.

A debt-free card and a cash buffer are the two best resources to minimize the impact of this risk if stocks drop sharply the moment you retire and decide to live off your portfolio.

Review past credit card statements

If you want to avoid credit card debt for good, you must analyze the spending patterns that resulted in your current debt. Monthly credit card statements over the past three months will reveal where your money went.

You will find necessities on your credit card, but discretionary items may also come up. It's also possible to overspend on necessities. For instance, grocery store runs are essential, but buying too many snacks results in extra expenses without meaningful nourishment.

Get rid of unused subscriptions

Unused subscriptions are a common culprit, especially for people who have not checked their credit card statements for several months. Streaming platforms, gym memberships, and software plans all add up.

Getting rid of a single subscription minimizes how much debt accumulates on your credit card while freeing up more of your earnings to go toward your balance. Unsubscribing from a plan that costs $50 per month translates into $600 in annual savings.

Work extra hours now to avoid long-term debt

If your credit card debt is too high for a month's wages to cover, it is worth adding a few hours to your working schedule each week. Whether you get more hours at your current job or pick up a side hustle, those extra earnings can speed up your payments.

Making more frequent payments toward the principal reduces interest accumulation. You won't have to work those extra hours later in life if you take massive action on your current balance.

Rip up credit cards if you must

Before Mark Cuban became a billionaire, he struggled with credit card debt to the point of ripping up cards. It got to the point where he couldn't buy a computer at Radio Shack with credit.

He got a friend to lend him $500 for the computer that he used to build the software that changed his trajectory. That experience taught Cuban to view debt as something to pay off aggressively instead of treating it as leverage.

Pay off debt before buying stocks

Although stock investing is a common path to wealth, it is risky. Returns aren't guaranteed, but you are guaranteed to pay 20% APR if you keep any debt on your credit card.

The stock market and other assets are viable next steps after becoming debt-free. Debt and assets are never a good mix, especially when it comes to margin. It's best to avoid risky bets and focus on the basics of personal finance.

Bottom line

Paying off your credit card provides an instant and guaranteed return that almost always outperforms the S&P 500. Crushing your debt can also leave you well-prepared for medical bills, which have been responsible for approximately two-thirds of bankruptcies.

Investing in stocks is a great next step, but you shouldn't accumulate assets while debt builds in the background. Debt is not your friend.

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