How Much Credit Card Debt Is Too Much?

How Much Credit Card Debt Is Too Much?

How much credit card debt is too much depends on the specifics of your personal financial situation. Reviewing how much interest accrues, the impact on your overall household bills and your credit utilization ratio can help you figure out how much credit card debt might be too much for your household.

You might have too much credit card debt if:

• Your credit card balances are accruing lots of interest. If your credit cards have high interest rates and you're carrying balances that are accruing a lot of interest each month, you may be putting yourself in a difficult financial position.
• Your credit card payments make affording other bills difficult. Debt could pile up if you're unable to afford paying much more than the minimum credit card payment and cover the rest of your household bills.
• Your credit card balances are high relative to their credit limits. Your credit utilization ratio is a measure of your revolving accounts' balances relative to their credit limits as they appear in your credit report. Credit cards are revolving accounts, and having a high utilization ratio can hurt your credit scores. The average credit utilization among consumers was 29% in Q3 2023, according to Experian. Ideally, you should aim for a utilization rate under 30% to avoid extra damage to your credit scores; however, people with the best scores tend to have utilization rates under 10%.

Learn more >> What Is a Credit Utilization Rate?

Is Credit Card Debt Bad?

Some people might feel like any credit card debt is bad. If you feel that way and can avoid credit card debt, that's not necessarily a bad way to manage your finances. But consider a counterexample.

Say you need to borrow $10,000 for a pressing home repair. You have good credit and can qualify for a personal loan with a low interest rate and no origination fee. You also qualify for a credit card that has a promotional intro 0% APR on purchases for 15 months.

If you can afford to pay off the credit card balance in 15 months without paying any fees or interest, the credit card may be a better option than getting a loan. That assumes you don't add any more debt to the card and manage it responsibly once the large purchase is paid off.

Consequences of Too Much Credit Card Debt

Although there are a few exceptions, having a lot of credit card debt can generally be financially draining and mentally overwhelming. Some of the main consequences you might experience when you have too much credit card debt are:

• Your credit score could take a hit. High balances could lead to high utilization ratios unless you have very high credit limits. Having a high utilization ratio can hurt your credit scores—even when you pay your credit card bill in full.
• It's more difficult to qualify for more credit. In addition to the impact on your credit score, high credit card balances can increase your debt-to-income ratio (DTI). You might have trouble qualifying for a new loan or credit card—or receiving favorable offers—if you have a high DTI.
• You could accrue a lot in interest. Credit cards often carry a high interest rate. The rate applies to your revolving balance and new purchases unless you have a promotional rate. Credit cards also generally have variable rates. Rising interest rates can increase how much interest accrues and, by extension, your monthly minimum payment.
• You could pay credit card debt for years. If you only make minimum payments on your debt, you will pay a lot in interest and it can take years to pay off your balance.
• There could be negative physical and emotional effects. Debt has been linked to various mental and physical health ailments, including anxiety, depression and high blood pressure. Debt can also strain personal relationships, especially when you share finances with a partner or spouse.

You might be experiencing these repercussions, but there are options available if you're ready to get out of credit card debt.

Learn more >> What Are the Long-Term Effects of Debt?

How to Pay Off Credit Card Debt

It can be difficult to look over credit card statements when you know there's no way you can pay off the balance right away. But try not to be too hard on yourself or avoid thinking about your credit card debt.

Many people find a structured and strategic approach can help set them on a debt-free path. Here are a few steps you could take to start:

1. Evaluate Your Finances

Knowing where you're at can be important for creating a realistic timeline and implementing payoff strategies.

• List your loan and credit card account details. Figure out exactly how much you owe on each credit card and loan. List each account's current balance, minimum monthly payment and interest rate.
• Figure out your take-home pay. List how much you take home after taxes and withholdings for employee benefits.
• Calculate your necessary expenses. Find out how much you need to spend each month on necessities, such as home expenses, utilities, gas and food. Include the prorated amount for irregular expenses, such as a twelfth of the insurance premium that you pay annually.

You can use your income and expenses to figure out your discretionary spending—how much you spend on nonessential purchases.

Using a budgeting app could also make calculating your income and expenses easier. But the point isn't to put yourself on a strict budget. You just want to figure out where you stand based on your actual spending.

2. Consider Why You're in Credit Card Debt

People end up in credit card debt for different reasons, and understanding these could be important for determining which debt-payoff strategy makes the most sense.

• A limited-time emergency: You might have used credit cards as a stopgap when you were out of work or had a large unexpected bill. You might make steady progress once you find your footing, and you could look for whichever method helps you pay off the debt faster.
• Lack of income: Your credit card debt might creep up if you spend more on necessities than you earn. You may want to focus on increasing your earnings or finding ways to save money on necessities.
• Impulse spending: You might use credit cards to make impulse purchases that lead to overspending and credit card debt. For some people, working with a financial therapist is an important first step in addressing the core causes of overspending.

3. Compare Debt Payoff Strategies

Research and compare different strategies for paying off credit card debts. There are pros and cons to every approach, and some might not be realistic for you right now. But it's worth taking the time to understand your potential options.

• Avalanche method: For this payoff strategy, make minimum payments on all your debts but put any extra money you have toward the debt with the highest interest rate. Once that debt is paid off, do the same for the debt with the next-highest rate. You could save money and get out of debt sooner if you pay off the highest-rate debts first.
• Snowball method: This is similar to the avalanche method but focuses on putting extra money toward the debt with the lowest balance first. It might be easier to stick with your plan if you can cross debts off your list sooner.
• Balance transfer credit card: If your credit is in good shape, consider opening a credit card that offers an intro 0% APR on balance transfers. You can then transfer balances to the card from your other credit cards—some cards even let you transfer other types of debt. Try to have a plan for paying off the balance in full by the end of the offer's introductory period to avoid paying any interest.
• Debt consolidation loan: If you can qualify for a personal loan with a lower annual percentage rate (APR) than your credit cards, you could use the loan to pay off the credit card debt. Consolidating debt can make managing your finances easier, save you money on interest payments and give you a clear timeline for when you'll pay off the loan.

Learn more >> Debt Snowball vs. Debt Avalanche Method

4. Don't Go It Alone

Setting yourself up for success is important, but completely paying off credit card debt can take a lot of patience and perseverance.

• Find an accountability buddy. Although discussing money can be taboo, having someone who can keep you accountable and celebrate your wins can be helpful. This could be a friend or family member who is also working on paying off debt, a financial advisor, an accountability app or even a money-focused online group.
• Work with a credit counselor. A certified credit counselor can offer a free consultation where they review your finances and explain your debt-payoff options. If it makes sense, a counselor might suggest a debt management plan (DMP). You can't open or use credit cards while you're on a DMP, but the counselor may be able to negotiate to lower your interest rates and monthly payments, have fees waived, help you bring past-due accounts current and get you on track to pay off all the included credit cards within three to five years.

How Long Will It Take to Pay Off Credit Card Debt?

You can use a credit card payoff calculator, such as the one below, to find out how long it might take you to pay off your credit cards.

• Change the monthly payment amount to see how increasing your payment can affect how much interest you pay and how long it takes to pay off your cards.
• Change the APR to see how much you might save by consolidating debt with a debt consolidation loan.

Example: If you have a credit card with a $6,000 balance and 25% APR, you'll have a minimum monthly payment around $185. Here's a look at how several options would affect how much you pay:

• Making minimum payments: If you only make minimum payments, it'll take you 25 years and five months to pay off the balance and you'll pay over $11,819 in interest.
• Paying more than minimum: If you can make a fixed monthly payment of $250, you'll pay off the balance in 34 months and pay around $2,400 in interest.
• Using a debt consolidation loan: Alternatively, if you get a debt consolidation loan with a three-year repayment period, no origination fee and 12% APR, your monthly payment will be about $200 and you'll pay $1,174 in interest.

To maximize savings on interest you can get a balance transfer card with an intro 0% APR for 15 months and then a 25% standard APR. If there's a 3% balance transfer fee and you make $250 monthly payments, you'll pay off the balance in 26 months and pay about $490 in interest and fees.

Monitor Your Credit as You Pay Off Your Debt

Payoff timelines are estimates based on current interest rates and offers. You might qualify for better balance transfer card and loan offers as market rates change and your credit score increases, so it's worth monitoring your credit and revising your plan as you go.

You can check your Experian credit report for free and track your FICO^® Score^☉ based on your report. Experian can also help match you with offers for balance transfer credit cards and debt consolidation loans based on your unique credit profile.