How Do You Know If Your Credit Card Debt Is Normal?

CREDIT CARDS - CREDIT CARD BASICS
The average American has over $6,000 in credit card debt. Here’s how to find out if you have more debt than you can handle.
Updated April 9, 2024
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Woman Worried About Credit Card Debt

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If you’re stressed out about money, you may feel alone and isolated. But what you’re feeling is incredibly common. According to a study by H&R Block, nearly 60% of Americans reported that they constantly worry about money.

Credit card debt is often a major source of these financial worries. Because even the best credit cards tend to have high interest rates, carrying debt in this way can be a significant problem. If you have credit cards with a balance, you may be wondering how much credit card debt is normal — and when you should be concerned.

Below, find out what is a typical amount of debt and what warning signs you should look out for.ex

How much credit card debt is normal?

When it comes to credit cards, most Americans have several. In fact, in our report on the average credit card debt in America, we noted that the average number of credit cards per person is 3.1, and over 169 million people have at least one credit card. For people that use credit cards, they have an average balance of $6,354, and those credit cards have an average interest rate of 15.09% APR.

According to Experian, one of the three major credit reporting agencies, the average amount of credit card debt increased by 3% from last year. That’s much higher than the rate of inflation, suggesting that Americans are racking up credit card debt faster than they did in the past.

Carrying a balance on your credit cards is very common. In fact, over 44% of credit card accounts are “revolvers,” meaning these borrowers carry a balance from month to month. While not ideal because credit card interest rates can be high, having credit card debt isn’t necessarily the end of the world. It’s all dependent on how healthy your overall finances are and if you’re spending within your means.

How much credit card debt is too much?

Credit card debt is pretty normal for Americans but can quickly spiral out of control. When looking at your debt, it’s important to monitor your accounts for signs that you have too high of a balance. Here are five red flags to watch out for:

1. Your debt-to-income ratio exceeds 35%

Your debt-to-income (DTI) ratio is the amount of money you pay each month toward debt relative to how much money you have coming in. For example, if your take-home pay is $4,000 and you pay $1,500 a month toward your credit cards, your DTI ratio is 37.5%. Ideally, your DTI ratio should be 35% or less; that indicates you can comfortably afford your monthly payments. If credit card debt is driving your DTI ratio higher than that, you may struggle to pay all of your bills.

2. Your credit utilization is more than 30%

Using a large amount of your available credit is an indicator that you’re spending more than you should. According to Experian, your credit utilization shouldn’t exceed 30%. Any higher and you risk financial difficulties and a lower credit score.

3. You use one credit card to pay off another

While most credit card companies don’t let you use a credit card to make a payment on another card, you could take out a cash advance and use that to make a payment on your other card. But if you’re doing this, you’re playing a risky and expensive game. Not only are you just moving your balance to another card, but cash advances are typically subject to higher interest rates.

4. You can’t afford to pay more than the minimum

Most credit cards charge a minimum payment that’s 2% to 3% of your statement balance. If you had a balance of $6,354, your minimum monthly payment would be between $127.08 and $190.62. But to bring down your balance, you need to pay more than the minimum each month. If you can’t afford to do that, your debt is likely more than you can manage.

5. Your credit card debt is increasing

If you’re only paying the minimum required on your cards and continuing to use them for your spending, your credit card debt will increase. Combine that with high interest rates and your balance can quickly balloon beyond what you can handle.

Here’s how you can reduce your credit card debt

If you’re experiencing any of the warning signs listed above or are simply uncomfortable with the amount of credit card debt you have, follow these six tips to reduce your debt:

1. Create a budget

If you’re relying on your credit cards to pay your bills and regular expenses, you may be spending more than you make without realizing it. The first step in tackling your debt is coming up with a budget.

List all the money you have coming in and all your recurring expenses, such as rent, minimum credit card payments, groceries, utilities, car payments, and insurance costs. If your expenses outpace your income, identify areas where you can cut back. For example, perhaps you can get a roommate to reduce your housing costs or cook at home more often to cut down on your food expenses.

2. Boost your income

Once you create your budget, you may find that you don’t make enough money and there aren’t any more corners you can cut. If that’s the case, you’ll have to increase your income to pay down your debt.

If getting a raise or promotion sounds impossible, consider picking up a side hustle. You can earn extra money during the evenings or weekends when you have free time. Put that money toward your credit card balance and you can become debt-free much faster.

3. Consider a balance transfer

If you have high-interest credit card debt, one way to pay it down more quickly is to complete a balance transfer. With this approach, you take advantage of a credit card’s introductory APR (annual percentage rate) offer. Some cards offer up to 18 months at 0% APR, giving you time to pay down your balance without fighting against interest charges.

4. Consolidate your debt

If you’re ineligible for a balance transfer or need more time to pay off your credit card debt, another option is to consolidate your credit card balances with a personal loan. With this approach, you take out a loan for the amount of your current credit card debt. Personal loans generally have much lower interest rates than credit cards, so you’ll save money over time. Plus, personal loans have fixed repayment terms, so you’ll know exactly when you’ll pay off the balance.

5. Pick a debt repayment strategy

If you decide to tackle your debt without completing a balance transfer or consolidating your debt, it’s important to come up with a debt repayment strategy. There are two main approaches:

  • Debt snowball: With a debt snowball strategy, you make the minimum payment each month on every form of debt you have, but you put any extra money you have toward paying off the debt with the lowest balance. Once you pay off the card with the lowest balance, you roll that card’s minimum payment onto the card with the next-lowest balance. This approach allows you to pay off balances quickly, and some people find that progress to be highly motivating.
  • Debt avalanche: The debt avalanche method is similar to the debt snowball, but instead of focusing on the debt with the lowest balance, you put extra money toward the debt with the highest interest rate. The debt avalanche strategy helps you save more money in the long run than you would with the debt snowball, but your short-term wins won’t come as quickly.

6. Meet with a debt counselor

If you’re overwhelmed with debt and don’t know where to start, consider meeting with a certified credit counselor. They can help you come up with a budget and debt repayment strategy. And, if your situation is severe enough, they can even help you come up with a debt management plan (DMP).

Under a DMP, the counselor will work with your creditors to set up an agreement. You’ll make payments to the credit counseling agency, which will disburse it to your creditors. With a DMP, you’re typically out of debt within 36 to 60 months. And the credit counselor may be able to negotiate with the creditor to get certain fees waived.

You can find a reputable credit counselor through the National Foundation for Credit Counseling.

Managing credit card debt

Now that you know how much credit card debt is normal and what warning signs to look out for, you can evaluate your own finances and see how healthy your credit habits are. If you have more credit card debt than is typical or feel like you can’t afford your current debt, use the above tips to come up with a plan to manage your debt, better your financial situation, and use your credit cards wisely.

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Kat Tretina Kat Tretina is a personal finance expert focusing on practical financial matters, including student loans, debt repayment, side hustles, insurance, and healthcare. Drawing from her personal experience, she aims to simplify complex financial topics and provide individuals with the information they need to make informed decisions.

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