How much credit card debt is too much?
Credit cards, when used responsibly, can be a helpful tool that can help you come up with funds for unexpected needs such as a car repair, large appliance purchase or even to pay an unexpected medical bill when savings are thin. But what are the signs of too much credit card debt, and what can you do once a problem is recognized?
It could be argued that carrying any credit card balances into the next billing cycle would be too much. After all, you go into a purchase deficit once interest fees are accounted for. However, that’s not practical, and credit cards can serve a good purpose when used properly.
Instead of focusing on a set dollar amount, since we all have different financial scenarios and debt tolerance, we’ll focus on how credit card debt currently makes you feel.
Similar to the smiley face to frowny face, with a scale of one to ten that you would see in a doctor’s office, credit card debt can be viewed the same way. The smiley face would obviously represent no worries whatsoever, but the grimacing frowny face would show an almost unbearable amount of stress and inability to pay back your creditors.
Of course, trying to prevent an issue before occurring would be ideal, but that is a bit idealistic. Emergencies come up, or maybe we make an impulsive purchase, perhaps an emergency room visit, or our car broke down, the opportunities to use a credit card are plentiful. The key is addressing the uneasiness or stress before the situation becomes too dire.
The answer to the question would be, when you feel or recognize that repaying your credit card balances each month isn’t possible, it’s time to plan and take action. Carrying over balances in which interest rates are applied should be considered “too much credit card debt” simply due to the fact that you are now spending more than the original purchase or service cost for the convenience of using a credit card.
How to get out of credit card debt.
Consider reading our guide: Paying Off Credit Card Debt.
If you’ve come to the conclusion that you need to address your debt, regardless of the severity of the credit card debt that you owe, you’re on the right track. Identifying the issue and taking action is the most important aspect in terms of digging out of a financial problem.
Here are some options to consider when planning your approach to dealing with your credit card debt.
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Transfer your credit card debt to the lowest-interest card you can find. Doing so can help you free up the dollars that were going to interest fees and allow you to apply them directly to your payments. You must exercise restraint and not use any new credit card for new purchases, or you will inevitably find yourself in a worse position from where you started.
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Develop a repayment strategy and stick to it. There are many strategies that personal finance experts have developed over the years. Find the one that works best for you. You can attack the smallest credit cards first, and then use any freed-up funds to apply to the next smallest balanced card, until your larger debt receives the full share of payments. It’s a popular strategy because it shows progress. You may want to simply attack the highest interest rate card you owe in order to maximize your savings. Whatever repayment plan you choose, you’ll need to stop using your credit cards to successfully achieve zero credit card debt.
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Seek help from a nonprofit credit counseling organization. If you’re taking action to pay off your credit card debt, but it’s a bit late in the game and your stress levels are high because you can’t see a way to make it work, then seek help. Nonprofit credit counselors like Money Fit will discuss your financial picture with you. This means reviewing your income, budget, and spending habits, and in turn, they will help encourage you to make some changes that they believe will help you get ahead. They also have a program called a debt management plan, that in many cases can reduce the amount an individual needs to pay back while keeping their monthly payments as low as possible. This is achieved by working out reduced interest rates and required monthly payments to creditors where possible. It also puts an end to using the further use of those credit cards. Consumers that work with a debt management plan typically see their debt paid off within 5 years or less.
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Bankruptcy is the last resort. In the most extreme cases, bankruptcy should be considered. An attorney can help answer your questions about bankruptcy and if you have no ability to pay your debt back, this could be your best option. We advise researching the effects of bankruptcy and having a full grasp of how your life may be impacted, though the road to recovering from bankruptcy may be easier now than in past years.
Free Personal Finance Resources are Plentiful
Use the free financial resources that are available. The internet is full of free information, resources, and tools that are built to help you get out of debt. Take advantage of them. Your level of activity and involvement in learning about personal finance will do two things that will have positive long-lasting effects. First, you’ll have the opportunity to learn something new, and of course, the more you know the greater the chance of success is. Second, the more active we are in anything we do, the more invested we become, which generally leads to a higher effort which inherently increases our success rate.
Personal finances, especially as related to debt, isn’t the most exciting topic, but if you always keep in mind how poorly being in debt has made you feel you’ll be more apt to stay vigilant in preventing it from happening again. We’ve seen thousands of consumers change their life stories for the better because they took an ardent and active role in paying off credit card debt.
