How much credit card debt is too much? Do you know? Are you worried about your credit card debt and you don’t know how to go about it? Well, this post is everything you need. Continue reading to find out how much of your credit card debt is just enough and also how you can come out of it.
How Much Credit Card Debt Is Too Much
While credit cards are very much useful for building a good credit history as well as convenient for making everyday purchases, they also can be a slippery slope to unwanted debt if they are not managed carefully. There is no recommended maximum limit for credit card debt that cardholders can live by as the main key to maintaining a good credit score is by keeping credit utilization just below the 30% mark and as well as paying off balances on time.
The term “Too much” debt simply depends on the cardholder and their financial situation. As per consumer credit reporting agency Experian, the average consumer debt on credit cards as reported in 2022 was $5,589. For some, this might just be too much debt but for others in question, this might just be their average monthly spend on a credit card.
And on the surface, zero debt sounds quite a lot better than having any debt at all. Debt, after all, simply shows an obligation, and freedom at most times equates to a lack of obligations. And quite unfortunately, our system does not work this way.
How to Maintain a Manageable Debt
The utilization of credit remains a key factor in credit score calculation. A credit utilization rate simply is the amount of credit that is being used compared to the total amount of credit a cardholder has available across all of their credit accounts. It is generally recommended that cardholders should keep credit utilization below the 30% mark.
And calculating credit utilization is fairly straightforward as it entails you to add up the credit limits of all the credit cards that you have to find a total credit limit. Then you should add up the balances on all your credit cards and then compare the two numbers. If it is that your total balance is more than 30% of the total credit limit, then you just may be in way too much debt.
Some experts in the market consider it really best to keep credit utilization between 1% and 10%, while anything that is between 11% and 30% is typically considered good. Card issuers as well as lenders in the market want to see a cardholder making use of revolving credit and paying off balances responsibly.
Cardholders who do not get to use their card aren’t making the issuer any money unless they are paying annual fees, but cardholders on the other hand who use too much of a credit limit are seen by them as posing more risk. Having at least a little bit of debt can actually increase your credit score over time as long as the credit activity in question is considered healthy thus meaning that payments are made on time, balances are kept low, etc.
How to Pay Off Credit Balances
When you feel that credit card debt is out of control and high-interest rates are just on the horizon, there are options available to you to help lower your credit card utilization and they help you to manage your debt more responsibly.
Pay Off Credit Card Balances
If cardholders in question have sufficient funds, then the fastest way to lower debt is to pay off all credit card balances as soon as possible. And obviously, this requires liquidity and may not always be very much possible. Budgeting to pay off balances over time can really help, even if it is that interest starts to accrue.
Apply For a Personal Loan
Personal loans as you should know are a less-expensive option for cardholders who need more time on their end to pay down debt. Personal loans as you know can offer much lower interest rates than credit cards. And according to Federal Reserve data, the average credit card interest rate reported in Aug. of 2022 was 18.43% while the average personal loan interest rate on the other hand on a 24-month loan was 10.16%. You can make use of a loan calculator to estimate the various interest rate as well as repayment scenarios.
Apply For a Balance Transfer
Some credit cards in the market offer introductory 0% promotional APRs on balance transfers for its new customers. Cardholders that have too much credit card debt can effectively consolidate debt onto a new card.
Balance transfers as you should know have limitations. A new cardholder however can only transfer up to the credit limit of the new card and balance transfers in question typically require a one-time fee for each transfer, which will get to increase the amount that is owed. And if cardholders hope to consolidate multiple debts, each transfer in question will incur a fee.
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