Credit cards have many benefits: flexible financing, reward programs, and the opportunity to earn welcome bonuses and credits. But their perks aren’t valuable if you carry a monthly balance.
Carrying a large balance month to month results in high interest charges, making it harder to repay what you owe. And if you fall behind on payments, you’ll also be on the hook for late fees.
Here are some telltale signs your credit card debt is unmanageable, the potential consequences of too much debt, and some strategies for paying it down.
Your credit utilization and the percentage of take-home pay you spend on debt could offer some insight into whether your credit card balances are too high. Here’s what to know.
Your credit utilization is the amount of revolving credit you use relative to what’s available to you. Revolving credit includes things like credit card balances and home equity lines of credit (HELOCs).
For example, let’s say you have $15,000 in total available credit across all your cards, and your outstanding balances are $5,000. In this case, your credit utilization would be around 33%.
Generally, experts recommend a credit utilization below 30%, though lower than that is even better. A low credit utilization typically means your debt is more manageable, whereas a high utilization could mean a heavier burden. If your credit utilization is hovering at 30% or even higher, it could mean your monthly debts are becoming burdensome.
Besides your credit utilization, your total monthly debt payments can also determine whether you have too much credit card debt. This calculation should include your car loan, mortgage, and other loan payments you make.
A common budgeting strategy is the 28/36 rule. According to this method, you should spend no more than 28% of your gross monthly income on your housing payment and a maximum 36% of your monthly income on all debt payments, including credit cards and other loans.
If you pay significantly more than that to all your debts — 50% of your monthly income, for example — that could be a sign your debt is too high.
There are several other red flags your debt is becoming too much to bear:
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High interest charges: Your debt could be on track to becoming unmanageable if you’re bogged down by high interest charges. Even if you don’t make any additional purchases on the card, interest fees could mean your balance continues to grow.
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Late payments: Missing payments or paying late is another red flag that your credit card debt may be overwhelming.
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Maxed out cards: Likewise, maxing out or coming close to maxing out your cards may be a sign you need a different financial strategy.
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Inability to afford other bills: If you can’t afford your other monthly bills because of hefty credit card statements, your debt may be too much.
Read more: What happens if you stop paying your credit cards?
High levels of credit card debt can have detrimental consequences on your finances and your life. Most notably, significant debt could hurt your credit score in a big way. Poor credit often has a domino effect, making it more challenging to get approved for future loans, rent an apartment, or get affordable insurance rates.
Other consequences include:
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Significant difficulty repaying debt: Racking up hefty interest charges or late fees adds to your balances, making it even harder to repay credit card debt. Interest and fees add up fast, which means you could end up paying off your debt for much longer than you’d originally planned.
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Inability to manage other bills: Large credit card balances can also hurt your ability to manage other bills, making it harder to pay utilities, phone bills, and other debt obligations.
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Financial anxiety: Stress is another harmful — but often overlooked — consequence of too much credit card debt. Your debt has the potential to hurt both your mental and physical health if you have significant trouble making ends meet.
You have some recourse if you’re struggling. Here are some strategies to help you pay off your credit card debt.
Finding opportunities to shift money around or cut costs is your first step. Consider dialing back discretionary spending and focus on putting more money toward your credit card balances. Doing so may be difficult in the short term, but it’ll pay off in the long run.
Read more: What to do if you can’t make your credit card payments
Once you’ve altered your budget, devise a plan for repaying your credit card debt. The debt avalanche and debt snowball methods are two popular repayment strategies. With the debt avalanche method, you prioritize your highest-interest balance first, then focus on your next highest-interest balance, and so on. With the debt snowball method, you repay your smallest balance first, regardless of the interest rate, then your next smallest balance, and so on.
Read more: How to pay off credit card debt when your budget’s tight
If your credit is decent, consider applying for a personal loan and using those funds to pay off your credit card debt. Several banks and credit unions offer these loans, so you can shop around for a rate and term that best suits your needs.
Personal loans often have significantly lower rates than credit cards, which means your long-term interest costs will be much less than they would with a credit card. Less interest could mean more manageable payments.
A balance transfer credit card is an alternative to a personal loan if you still have strong credit. These cards offer a 0% introductory APR on balance transfers for a specific time frame, often up to 18 months. While having 0% interest for several months is helpful, ensure you can repay your debt within the introductory period, or your remaining balance will once again be subject to high interest charges.
Read more: What is a balance transfer, and how does it work?
Once you’ve paid down your debt, keeping your balances manageable in the future is crucial. These tips can help you keep your credit card balances in check:
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Wait before buying: Occasional impulse buys are common, but if you make unnecessary purchases often, it’s time to set some boundaries. Commit to waiting before you purchase so you can consider whether it’s something you really need.
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Stick to your budget: You’ll also want to commit to sticking to your monthly budget over the long term. This is one of the best ways to keep credit card debt within your control.
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Be mindful of your credit utilization: Paying attention to the amount of credit you’re using relative to the total available to you can also help keep you on track. Track your balances across accounts versus your total credit limit.
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Set up automatic payments: Automatic payments can help ensure you pay your monthly credit card bills on time. This can be especially helpful if you’ve struggled with past missed or late payments.
This article was edited by Alicia Hahn.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
