How Much Credit Card Debt Is Too Much?

How Much Credit Card Debt Is Too Much?

To figure out how much credit card debt is too much for your household, you can review your income, expenses, interest accrual and overall debt payments. You may have too much credit card debt if:

• You can't afford to make more than the minimum payments
• Most of your monthly payments go toward interest
• Your credit card balances are increasing each month
• The credit card debt is making it difficult to afford necessary purchases

In short, you might have too much debt if you don't see an actionable path toward paying off your balances.

Don't Compare Your Debt to Averages

There are reports and insights on households' average credit card debt based on the year, age and state available from many major consumer research groups. The average balances in these reports generally fall within the $4,500 to $6,500 range, although some reports show young and middle-aged consumers' balances were on the rise in 2022.

These reports can be interesting and potentially helpful for understanding larger trends, but they can also be misleading as a comparison point. The statistics often come from anonymized credit report data, and credit card companies generally report credit card balances to the credit bureaus at the end of each statement period—about three weeks before the bill is due.

For example, someone might spend $5,000 on their credit card and pay their bill in full every month. Their credit report may show an average credit card balance of $5,000, even if they're not revolving any debt or paying interest.

Similarly, someone might use a credit card with a promotional 0% annual percentage rate (APR) offer to finance a large purchase without paying any interest. This could be a savvy financial move rather than an indication that the person has debt they can't afford to pay off.

Consequences of Too Much Credit Card Debt

Having a lot of credit card debt can be financially draining and mentally overwhelming. Some of the main consequences are:

• Your credit score could take a hit. Your credit utilization ratio compares your revolving credit accounts' balances and credit limits, and having a high utilization ratio can hurt your credit scores. High balances will lead to high utilization ratios unless you also have much higher credit limits.
• 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 can accrue a lot of interest. Credit cards often have a high interest rate, which will apply to your revolving balance and new purchases (unless you have a promotional rate). Credit cards also generally have variable rates, and rising interest rates can increase how much interest accrues and, by extension, your monthly minimum payment.
• 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.

How to Get Out of Credit Card Debt

Try not to be too hard on yourself or ignore your credit card balances, even though it can be difficult to look over credit card statements when you know there's no way you can pay off the debt right away.

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. List your credit card debts, income and expenses. Figure out exactly how much you owe on each credit card, your cards' monthly payments and each account's interest rate. You can use this information when you're trying to decide which account to pay down first. It's also helpful to write down how much you earn each month and to review your necessary and discretionary spending—a budgeting app might make this easier.
2. Consider why you're in credit card debt. If you were out of work or had a large unexpected bill, you might have used credit cards as a stopgap. But if your credit card debt has been creeping up because you're spending more than you earn, consider whether you're overspending or not earning enough. 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, such as the avalanche or snowball methods, a balance transfer credit card and debt consolidation loans. 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.
4. Get a professional opinion. Nonprofit credit counseling agencies may offer you a free consultation with a certified credit counselor who reviews your finances and helps you compare debt-payoff options. They may recommend a debt management plan (DMP). This can help lower your interest rates and monthly payments, and pay off the included credit card debts within three to five years.

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

Monitor Your Credit as You Pay Off Your Debt

A good credit score can open up new opportunities for saving money and speeding up your payoff plan. You can check your Experian credit report for free and see 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.