How Much Credit Card Debt Is Too Much?

Credit cards are convenient for so many reasons. You don’t have to pay right away. You might get rewards for using them. Eventually, though, the bill comes due. This isn't a big deal if you can afford to pay the balance in full each month. If you're watching your balances slowly grow over time, you might begin to worry. You might ask yourself questions like, "How do you know when you have too much credit card debt?" Or "What happens if my balance keeps rising?" 

It’s possible to pay down credit card debt with the right strategies, even without a ton of money in savings or a large income.

The Problem With Having Too Much Debt

The fact is, most Americans possess and increasingly rely on credit cards to pay for items on demand. They are simple, easy, and quick to use. According to Federal Reserve research, the average American household owes $6,270 in credit card debt today. For many people, that debt becomes problematic.

Everyone gets in a little over their heads once in a while, and sometimes, charging an expense to your credit card really is your best option in the moment. That said, credit card debt can create new challenges over time. 

Getting credit card debt relief is possible, and it's a great first step in taking control of your finances. There are several things you can try to put your debt behind you. But you always want to begin with education. That's where we'll start. 

Let’s look at some key questions, like how do you know when you have too much credit card debt? And how do you take control of credit card debt so you can put it behind you?

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How Much Credit Card Debt Is Too Much?

If you asked most people, the ideal amount of credit card debt is zero. We'd all like to pay off our monthly bills in full every month. But sometimes, our budgets just don't allow that.

There's no hard line where credit card debt becomes problematic. If you carry a balance on your credit card, you'll owe interest (unless you’re in a special zero-percent promotion). But if you pay the balance in full the next month, it may not cost you much or anything, and it might not worry you. However, someone else in that situation might be really stressed out by the idea of carrying any balance at all.

Whether it’s problematic is ultimately about when the debt begins to negatively affect your lifestyle. If it's causing you a lot of stress, costing you more than you’d like to be paying on debt, or you're getting calls from debt collectors because you can't keep up with your payments, those could be signs that you’re outside your debt comfort zone. 

11 Warning Signs of Too Much Credit Card Debt

Consider whether any of the following red flags apply to you:

• Your debt-to-income (DTI) ratio is high.

• You carry balances because you spend more than you earn.

• Your cards are maxed-out, or close to it.

• You make only the minimum payment on your credit cards.

• Your credit score drops because you use a lot of credit.

• You’re using new credit cards to pay old credit cards.

• You’re using credit cards for cash advances.

• You pay late.

• Your credit card debt makes you anxious.

• Your financial situation makes you feel ashamed or embarrassed.

• You're unable to save for your other financial goals.

Warning sign #1: Your DTI is high

Your debt-to-income (DTI) ratio is a measure of how much of your monthly income goes to debts and housing. Add up your monthly debt and housing payments—credit card minimum payments, loan payments, mortgage or rent, etc.—and divide that number by your before-tax monthly income. Don't include living expenses like food or utilities in this calculation.

For example, if your monthly gross income is $5,000 per month, and your monthly debt payments amount to $2,500 per month, your DTI ratio is 50%.

Most lenders prefer that your DTI ratio is 43% or lower when you apply for a loan. That tells them you can afford the payment on the new loan you want.

A higher DTI means there’s less room in your budget, and you may have too much credit card debt. That could make it harder to find extra money to pay down debt.

Warning sign #2: You carry balances on your cards because you spend more than you earn

Carrying a balance on your credit card might be your only option for handling an unplanned expense if you don't have an emergency fund. That’s okay. But the idea is to pay the balance down as soon as you can. If you can’t, or if your debt is going up each month instead of down, you might be spending more than you’re bringing in, leading to too much credit card debt.

Warning sign #3: Your cards are maxed out or close to it

Every credit card has a credit limit. The card issuer doesn’t allow you to spend more than this total amount. If you're approaching your limit on one or more cards, that could be a red flag that you have too much credit card debt. If you're not sure what your credit limit is, check with your credit card issuer.

Warning sign #4: You always make only the minimum payment on your credit cards

Credit card minimum payments are usually pretty low. They're often a small percentage of the total balance. As long as you pay this amount, the card issuer reports your account as being in good standing.

But minimum payments are designed to keep you in debt for a long time. The longer you owe, the more interest you’ll pay. If you’re only paying the minimum, you’re making very little headway against the debt. If your minimum payments are very high because your balances are very high, you might have too much credit card debt.

Warning sign #5: Your credit score drops because you use a lot of credit

Your credit utilization ratio is your credit card balance compared to your credit limit. It’s calculated for each card, and overall. For example, if you have a $1,000 credit limit and you charge $250, your credit utilization ratio for that month is 25%. Utilization is a major part of your credit score. Higher utilization tends to bring credit scores down.

A higher credit utilization ratio for a single month may not be too concerning. But a high utilization over time could mean that you have too much credit card debt.

Warning sign #6: You’re using new credit cards to pay old credit cards

Using new credit cards to pay off old credit cards only makes sense if you’re using a 0% introductory balance transfer offer and you have a plan to get rid of the debt. 

If you’re moving debt around between credit cards because it helps you skip a payment now and then, you probably have too much credit card debt. This is a situation that might even call for expert debt help.

Warning sign #7: You’re using credit cards for cash advances

Many credit cards offer cash advances, which are convenient, short-term loans against your credit limit. But cash advances are a very expensive way to borrow. Also, there’s no interest-free grace period on a cash advance the way there is with most purchases. The debt begins accruing interest immediately.

A credit card cash advance could be a good short-term emergency solution to a cash crunch. It’s typically cheaper than a payday loan. But if you’re taking out cash to pay bills, you might have too much credit card debt. 

Warning sign #8: You pay late

If you can’t afford to send in your payment by the due date, your budget could be too stretched. That could mean that you have too much credit card debt. This is likely also taking a toll on your credit score, as late payments can drop your score significantly.

Making minimum payments on time is essential to keep your credit card account in good standing. If your payments are so large that this isn't possible, you may need to explore some of the debt relief options discussed below.

Warning sign #9: Your credit card debt makes you anxious

If your credit card debt worries you, that's reason enough to work at paying it off, no matter the balance. Try one or more of the debt relief strategies listed below.

Warning sign #10: Your financial situation makes you feel ashamed or embarrassed

Feeling uncomfortable discussing your financial situation with friends or family could be a sign that it's time for professional help. Asking for help when you need it is a brave step, and it could make you feel less alone as you begin to work with a knowledgeable person who can guide you through the debt relief process.

Warning sign #11: You're unable to save for your other financial goals

If you're not able to save for your other long-term goals, like a new home or car, retirement, or your children's college savings because all of your extra money is going to debt repayment, that could be a sign your debt has become too much for you. 

Pursuing debt relief can help you get your credit card debt off your plate so you can make those other goals priorities again. Once you're clear of debt, you can begin to work on building an emergency fund. This is a vital financial safety net that can help you avoid new debt the next time an unexpected expense arises.

Consequences of Too Much Credit Card Debt

Having too much credit card debt can have a number of short- and long-term financial consequences, including:

• Low credit score. A lot of credit card debt typically brings a high credit utilization ratio and sometimes missed payments, both of which can hurt your credit score.

• Difficulty getting new loans and credit cards. If your credit score is low because of too much credit card debt, that could make some lenders wary of working with you in the future.

• High interest charges. Carrying a balance on your credit cards means you pay more in interest over time.

• Stress. The stress of carrying a large amount of credit card debt may take a toll on your physical and emotional well-being.

• Long-term financial stability concerns. When you're struggling to pay off credit card debt, you may have a hard time reaching your other financial goals.

• You may not experience all of these. Some people manage to keep their credit score high by making minimum payments on time while their credit card balances continue to grow. Getting yourself back on  stable financial footing should come before worrying about your credit score. After you've executed your credit card debt relief plan, you can work on building your credit score back up again.

How to Take Control of Your Credit Card Debt

Now that you have a sense of how much credit card debt is too much, let’s talk about how to regain control of your finances. There are several strategies you could try to get a handle on things and safeguard your credit, such as:

• DIY debt payoff (snowball and avalanche methods)

• Debt consolidation

• Credit counseling and debt management plans

• Debt relief (debt settlement)

• Bankruptcy (Chapter 7 and Chapter 13)

Debt acceleration (snowball and avalanche)

The debt snowball and debt avalanche methods are strategies for paying off your debt. Both methods involve paying the minimum balance on all of your credit cards each month to avoid late fees. But you give one debt special attention. You round up every extra dollar you can find and pay as much as you can to that debt. 

The debt snowball method focuses on the debt with the smallest balance first. When that's paid off, you take its payment and apply it to the card with the next lowest balance, and so on, until you're debt-free. This is a good strategy if you want to build a sense of momentum quickly.

The debt avalanche method focuses on the debt with the highest interest rate. This is a good approach for those who want to pay as little in interest as possible over time.

Debt consolidation

Debt consolidation means using a new loan to pay off multiple debts. Ideally, debt consolidation should lower your interest rate. It could also reduce your monthly payment.

One popular way to consolidate debt is to take out a personal loan. Interest rates on personal loans tend to be lower than credit card interest rates. But how much lower depends on your credit score and the current interest rate environment. Personal loans also come with regular monthly payments and a set payoff date, so you know exactly how much you'll pay over the lifetime of the loan. It's best to compare rates from three to five lenders before deciding which you want to work with.

Credit counseling and debt management plans (DMPs)

Credit counseling typically involves getting help from a nonprofit credit counseling agency. 

Credit counselors are usually certified and experienced in consumer credit, financial and debt counseling, and budgeting. The agencies are typically funded by credit card issuers, and offer services at a low cost to consumers.

Credit counseling agencies offer debt management plans (DMPs) to help you pay off your unsecured debt (credit cards, personal loans, etc). In a DMP, you make one payment to the credit counselor, who distributes it to your creditors. 

The credit counselor might be able to convince your credit card issuers to lower your interest rate to help you get back on track.

DMPs usually are a three- to-five-year plan to fully repay your debt. They typically require you to close your credit card accounts, which can lower your credit score temporarily. This could be the right option for you if you can afford the monthly payment required.

Debt settlement

Debt relief, or debt settlement, means negotiating with your creditor to accept less than the full amount you owe but consider it payment in full. You tell the creditor what you can afford to pay toward your debt. If the creditor agrees to accept this amount as payment in full, the rest of the debt is forgiven.  

You could negotiate with your creditors on your own or work with an experienced debt relief program, like Freedom Debt Relief. This gives you access to a team of debt experts who can negotiate on your behalf. 

People just like you are seeking debt relief in Florida and across the country. The first step is the most important one—explore your options.

One of the key advantages to this strategy is that it’s possible to get rid of debt for less than you owe. Many customers settle their first debt within a few months of starting, though the whole process could take a few years to complete. 

Debt settlement typically has a negative effect on your credit score because most settled accounts are seriously delinquent. Many people typically choose to stop making payments to their creditors while they save up money to make settlement offers. Also, some creditors won't negotiate with you if you're current on your payments. If you're already behind on your bills, this may not concern you because your score might not have much further to fall.

If you're wondering whether debt settlement is right for you, schedule a free debt evaluation. A debt settlement expert will talk you through the process and answer any questions you have.

Bankruptcy (Chapter 7 and Chapter 13)

Bankruptcy is a legal process for dealing with debt. A bankruptcy judge and a court trustee go over your income, assets, and debts. 

Chapter 7 bankruptcy could erase all your credit card debts. This usually only takes a few months. You might have to give up some of the things you own so that the court can sell them and give the money to your creditors.

Depending on your income and expenses, you may not qualify for Chapter 7. You’ll be directed to Chapter 13 instead.

Chapter 13 bankruptcy is a three- or five-year payment plan, depending on your income. You don’t have to give up anything you own. At the end of your plan, remaining debts are discharged (forgiven).

How Long Will It Take to Pay Off Credit Card Debt?

How long it takes to pay off your credit card debt depends on how much you have, how much you're able to pay each month, and what strategy you use. 

Here’s how long it would take to pay off a $10,000 credit card balance with two different strategies. The card has an APR of 25%. The table shows the numbers for: 

• Minimum payments consisting of the interest plus 1% of the balance

• $500 monthly payment 

Both scenarios assume you don't charge anything new to the card.

This shows why it's best to pay more than the minimum if you're able to. 

These debt repayment methods are great places to turn if you're looking to get rid of debt more quickly. Here's a rough idea of how long each will take to get you out from under debt:

Don't Ignore Your Debt Problems

It's possible to get credit card debt under control, whether you have a lot of debt or a little. It all starts by taking a look at what kind of debts you have, and their amounts. Then you can compare the pros and cons of the strategies above to decide which makes the most sense for you.