Credit card debt is an all-too-common problem. Although not everyone has credit card debt, among households that do, the average debt amount is just over $16,000, a staggering amount that can take years to pay off. If you’re carrying around some credit card debt, it’s natural to wonder at what point you should be concerned about it. Here are situations when you should be taking a closer look at your credit card debt, from those that warrant extra attention to serious issues that you can’t ignore.
You’re Not Paying Your Full Statement Balance
This may seem like no big deal, but carrying around a balance on a credit card is rarely a wise choice due to their interest rates. Any time you don’t pay your entire statement balance, you can end up with interest charges on the portion you don’t pay.
If your statement balance is too much for you to pay off, then that’s a sign that you’re overspending. This is typically the first step people take into credit card debt, and even though it may not cost you that much in interest at first, it’s easy to progress to larger and larger amounts of credit card debt. Take this as a warning sign that you need to cut back on your credit card spending. However, we do recommend keeping a balance that is under the 30% utilization rate as paying off your entire balance does not always help your credit score.
Your Credit Utilization Is Over 30 Percent
Multiple credit reporting agencies issue credit scores, and they each have formulas to determine what your score is. Every reporting agency heavily weighs one factor when calculating your score: credit utilization.
Credit utilization is how much of your available credit you’re using at any one time. Let’s say you have $20,000 total in available credit across all your credit cards, and your combined balances total $10,000. That would make your credit utilization 50 percent, which is very bad.
When it comes to credit utilization, lower is better for your credit score. The standard recommended guideline is to keep your utilization under 30 percent. If your credit card debt is over that amount, then it’s harming your credit score.
Credit Card Debt Is Holding You Back in Life
If you can’t do certain things in life because of how much credit card debt is costing you per month, then you need to get it under control. This could mean that you’re unable to pay for courses to further your education because of your credit card payments, or you’re unable to get a mortgage because of your credit card debt. At this point, credit card debt isn’t an isolated issue: it’s infecting other aspects of your life.
You’re Only Making Minimum Payments
Anyone who knows how credit cards work can tell you that only making minimum payments is a terrible idea. You can usually even check your bill for a handy table telling you how long it will take to pay off your credit card debt through minimum payments. There are also debt repayment calculators available online. It tends to be a matter of years or even over a decade.
When you’re making minimum payments, you’re also making barely any progress on repaying your credit card debt. This indicates that you need to make some hefty changes to your financial habits to avoid ongoing issues that plague you for the rest of your life.
Credit card debt is no laughing matter. It weighs you down month after month, and the longer you take to handle it, the worse it gets. If you’re concerned about your credit card debt, take action right away to adjust your financial habits and get it under control.