How Much Credit Card Debt Is Too Much?

While credit cards can provide significant benefits for many consumers, having too many open credit accounts or large revolving balances can lead to serious financial problems, which include unaffordable monthly payments, declining credit scores, and higher interest rates.

Data from Experian shows that the average consumer in the United States has three open credit cards. Unlike secured and installment loans that carry a fixed interest rate, credit card cardholder agreements allow lenders to change the interest rate at any time. Some consumers choose to repay in full each month keeping interest rates and monthly payments much lower.

Other consumers repay less than the full amount due and use credit cards for both transacting and borrowing. The problems arise when these monthly payments are not paid in full and the balances carry over with higher late fees and interest rates. If consumers pay late or borrow close to their credit limits, then lenders may raise the interest rate to a penalty range. Lenders will also raise fees when consumers pay late or exceed their credit limits often.

Many individuals find themselves struggling with credit card debt. When consumers’ incomes are high they are likely to pay their credit card bills in full. When their incomes decline, they are likely to pay late or pay only the minimum amounts due. Any amount of credit card debt can be debilitating, but to ensure financial stability consumers should limit their number of open credit cards and the amount they borrow. While keeping a few credit cards open may be manageable for some consumers, others may be unable to cope with the severe consequences that come with multiple account balances.

For many, bankruptcy has provided an effective escape from high credit card debt and other debt. If you find yourself burdened with large credit card balances or too many open accounts, it’s time to start thinking about the debt relief options available to you. Bankruptcy is one option that can give you a fresh financial start.

Debt consolidation companies are also an option but that is a blog for another day.