How Much Credit Card Debt is Too Much?
5 Warning Signs of Bad Credit Card Debt
If the average amount of credit card debt in America is $8,000 per household, how much debt is too much credit card debt?
There's no hard-and-fast answer to that question. Instead, behavior determines how much debt is too much. How people manage credit plays a big part in determining whether their credit cards are good debt or bad debt. Here are the five warning signs of bad credit card debt.
Bad debt warning sign: Maxed-out credit cards
Are your cards maxed out or near their credit limits? If you said yes, then you may have too much credit card debt. Your credit score and debt are closely tied together. The credit reporting agencies look at your ratio of debt to credit to determine your credit rating. As you put more and more of your total credit in use, your credit score drops.
Bad debt warning sign: Minimum payments hurt
Is making the minimum payments a real pain in the bank account? Always budget a little extra for your credit card payments. If you can't afford the extra amount, you may be edging into too much debt territory. If the minimum payments are a pain, you're definitely carrying too much credit card debt.
Bad debt warning sign: Credit card juggling
Do you use a credit card to pay off the debt on another credit card? You're probably carrying too much debt. Juggling payments from card to card is not a good way to manage your credit. You're sending a red flag to the credit reporting agencies and damaging your credit score in the process.
Bad debt warning sign: No savings or dwindling savings
Do you have a growing savings account? The state of your savings is a good indicator of how much debt is too much. Most financial advisors recommend putting away at least 10 percent of your earnings in savings. If you're carrying too much credit card debt, paying the bills hampers your ability to accrue any savings.
Bad debt warning sign: Buy, pay, buy
Are you buying things with a credit card while trying to pay off the balance? The "buy, pay, buy" cycle never works. The reason? Credit card finance charges ensure that your payment will cover less than your full amount of credit used. If you pay $150, you may only gain $100 of credit after finance charges are deducted from the payment. When you make purchases with your card, you compound the problem.
If you're showing at least two of these warning signs, you definitely have too much credit card debt. Take charge of your financial situation, and make changes that will turn bad debt into good debt. Manage your credit before bad debt manages you.
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