The Perils of Too Much Credit Card Debt
As the level of inflation increases, and the cost of nearly everything rises, recently there have been numerous stories in the press citing the increasing level of credit card debt by American consumers. Using credit cards to cover the cost of usual and normal daily expenses (gas, groceries, etc.) isn’t terrible if you pay off the balance each month. However, if you find the balances on the cards are increasing each month, this could lead to financial trouble.
If you have high balances on your credit cards, you might start wondering how much credit card debt is too much. As a general rule, it’s best not to accumulate any credit card debt, but sometimes you need to do it. Credit card debt can be hard to pay off, so it’s important to know when you have too much and when it’s still manageable. By figuring this out, you can decide if you need to make some serious changes, or if you’ll be fine simply paying your bills as usual.
Many consumers don’t routinely pay off the entire balance on their credit cards each month, but instead pay some portion of the balance with each payment. If you fall into that category, you should always try to pay more than the required minimum payment in order to reduce the balance faster and limit the amount of interest you’re paying the card company over time.
The clearest sign that you have too much credit card debt is when you can’t afford the minimum payments. At that point, card issuers will start charging you late fees in addition to the regular (usually pretty high) interest charges. Once your payment is 30 days past due, it can go on your credit report and hurt your credit score.
If you can’t pay a credit card bill, or you’ve already fallen behind on payments, then you need to make some changes. Here are a few ideas that might help you change your financial situation:
- Cut back on unnecessary expenses
- Work with a credit counseling agency
- (As a last resort) Get a personal loan to refinance your debt
If you take the step of getting a loan to refinance the debt on the credit cards, don’t continue to use the cards and increase the balance on them again.
Even if you’re able to make your payments on time, your credit card debt might still be an issue. If you are reaching the credit limit on your credit cards, that’s a sign that you might be reaching the danger zone with your credit card debt.
Maxing out a credit card is when you’ve spent your entire credit limit, which is the maximum amount you can spend on the card. Card issuers must decline any transactions that would cause you to go over your credit limit, unless you’ve agreed to over-the-limit transactions (which can have extra fees).
If you’ve maxed out a credit card, it can have negative consequences. You won’t be able to use the card until you’ve paid down the balance. A high credit card balance also raises your credit utilization ratio, which can lower your credit score.
One of the difficult things about credit card debt is how it can sneak up on you. It often creeps up over time. If you aren’t paying more than the minimum payment, but still charging new purchases, the balance gradually increases every month. Eventually, what was previously a small, manageable amount has grown by thousands of dollars.
When your credit card balances are growing, that’s a red flag to watch for. Whenever possible, it’s good to be proactive about paying down those balances before they become a much bigger problem.
It might also be an issue if you’re only making the minimum monthly payment. It can take years to pay off credit card debt when only paying the minimum due each month. If you’re in this position, see if you can free up any more money by cutting out unnecessary expenses so your monthly payment makes more of a dent in what you owe.
How do you properly manage your credit? A good starting point is to set up a budget and figure out how much you can pay per month. From there, you can build a debt payment plan and look at options that will help you pay off your debt cheaper and more quickly.