While credit cards offer convenience and flexibility, it is important to use them wisely in order to avoid falling into the trap of credit card debt. An integral part of financial literacy is understanding how to use credit cards and other financial products to your advantage!
Generally speaking, your credit utilization ratio should not be more than 30%, meaning that you should only use up to 30% of your available credit. Keeping a low credit utilization ratio is important because it shows lenders that you are responsible with your credit cards and can effectively manage your debt obligations.
Although you do not have to avoid credit card debt like the plague, it is important to be smart with your credit cards and not spend too much. Getting into debt is hard to get yourself out of!
Is Credit Card Debt Bad?
Yes and no. Carrying high balances on your credit cards can lead to a plethora of financial concerns. If you carry a high balance, you may be subject to high interest rates, which can result in mounting debt and considerable difficulty paying off your balances. Many financial experts recommend keeping your credit utilization low, which includes your credit cards! Do not max out your credit card by paying for frivolous things. You don’t need to keep up with the Joneses, you need financial security and stability. If your credit utilization is too high, it can have a negative impact on your financial well-being.
One of the main consequences of high credit utilization is that it can potentially lower your credit score. Lenders typically view high credit card balances as a sign of financial instability and may be hesitant to extend further credit to someone with a high utilization ratio. If you have a lower credit score, it will be difficult to apply for certain financial products, such as credit cards, loans, and more. Additionally, having a low credit score can potentially affect your career! According to CNBC, over 16% of employees review prospective employees’ credit reports in order to determine their financial responsibility.
How Much Credit Card Debt is Too Much?
It is important to monitor your credit card debt and make sure it doesn't become unmanageable. Having any amount of credit card debt can be problematic, but as a general rule of thumb, it is advisable to keep your credit card debt manageable and not exceed more than 30% of your overall available credit. Apart from the existing financial concerns, credit card debt has been linked with increased anxiety and poorer health.
What Should I Do if I Can’t Pay Back My Credit Card Debt?
If you find yourself unable to pay back your credit card debt, it is important to take immediate action. Ignoring your financial obligations and issues won’t make them disappear! In fact, if you do nothing, the situation could get worse, and you are essentially doing yourself a disservice.
Instead, if you need to get a better hold of your financial situation and manage your credit card debt, consider the following tips and tricks to get yourself back on your feet:
- Create a budget: Take a close look at your income and expenses to determine how much you can realistically afford to put towards paying off your credit card debt each month. It's important to look for areas in your budget where you can reduce spending and put more of your money toward paying off your existing debt.
- Implement a Debt Payoff Strategy: Try paying off your largest balance first with the highest interest rate! Then, once that is done, tackle the smaller balances. Or, you can do it the other way around - whatever your preference is or whatever you think will get you to your financial goals!
- Consider Debt Consolidation: If you have multiple credit cards with high balances and interest rates, consolidating your debts into one loan or balance transfer credit card may be a more effective way to tackle your debt. You can potentially apply for a title loan or a personal loan to consolidate your debt. Visit this website to find some options for this.
