May 12, 2021

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Here’s What Warren Buffett Says He’d Do With a $1,400 Stimulus Check

3 min read

A close up photo of Warren Buffett.

Image source: The Motley Fool

How one of the most successful investors in the world would use a stimulus check.

Warren Buffett is not among the 85% of Americans receiving a third stimulus check. But if he were, the Oracle of Omaha knows what he would do with it.

In an online meeting for his company, Berkshire Hathaway, Buffett said the first thing he would do with extra money that came his way is pay off credit card debt. During that 2020 meeting, Buffett spoke of a friend who came into some money and asked Buffett’s advice on what she should do with the windfall. During the conversation, he learned that she was carrying a credit card balance with 18% interest.

“It just doesn’t make sense. You can’t go through life borrowing money at those rates and be better off,” Buffett told shareholders.

Using stimulus funds to pay down debt

The average credit card debt balance in the U.S. is $5,315. While a $1,400 stimulus payment won’t eliminate the debt in full, let’s look at how much you could save by paying it down. The first table shows what would happen if you put no stimulus funds toward paying down the debt:

Amount Owed

Interest Rate

Monthly Payment

Time to Pay Off

Total Interest Paid

$5,315

18%

$133

62 months

$2,858

Now here’s what it would look like if you put $1,400 toward the credit card debt, but continued to make the same monthly payment:

Amount Owed

Interest Rate

Monthly Payment

Time to Pay Off

Total Interest Paid

$3,915

18%

$133

40 months

$1,289

Using your $1,400 stimulus check to pay down the credit card balance not only saves you $1,569 in interest payments, it shaves nearly two years off the time it takes to pay off the credit card.

And that $1,569 is nothing to sneeze at. Those are funds you can use to build an emergency savings account, cover other financial obligations, or invest with a broker.

Taking it one step further

Let’s say you owe more on high-interest debt and use your stimulus payment as a sort of down payment.

For this scenario, imagine you are paying 18% interest on $15,000 worth of debt.

Amount Owed

Interest Rate

Monthly Payment

Time to Pay Off

Total Interest Paid

$15,000

18%

$375

62 months

$8,079

Let’s look at what happens if you pay that amount down by $1,400 and consolidate the rest through a lower-interest personal loan. If you continue making a monthly payment of $375, you pay the debt off 21 months sooner, and save a whopping $6,355 in interest.

Amount Owed

Interest Rate

Monthly Payment

Time to Pay Off

Total Interest Paid

$13,600

7%

$375

41 months

$1,724

Here’s what it looks like if you lower your payment to $216 per month:

Amount Owed

Interest Rate

Monthly Payment

Time to Pay Off

Total Interest Paid

$13,600

7%

$216

79 months

$3,399

That way, it takes 79 months to pay the debt off in full, but you still pay $4,680 less in interest than if you’d hung on to the higher interest rate.

The problem with all-or-nothing thinking

When it comes to debt, it’s easy to become discouraged, to buy into the notion that you’ll never get out from under it. The truth is, no matter how much debt you face, chipping away at it works. Even if you start by paying it down with just a $1,400 stimulus check, that’s $1,400 less that you owe.

The writer and researcher Robert Collier once wrote, “Success is the sum of small efforts — repeated day in and day out.” The sentiment definitely applies to personal finances. Whether you’re chipping away at debt, building an emergency savings fund, investing for retirement, saving for vacation, or renovating your home a little at a time, you’re moving in the right direction.

Top credit card wipes out interest until 2022

If you have credit card debt, transferring it to this top balance transfer card can allow you to pay 0% interest for a whopping 18 months! That’s one reason our experts rate this card as a top pick to help get control of your debt. It’ll allow you to pay 0% interest on both balance transfers and new purchases until 2022, and you’ll pay no annual fee. Read The Ascent’s full review for free and apply in just 2 minutes.

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