How much credit card debt is too much?

The best way to manage a credit card is to pay off your full balance every month. This smart practice can help you avoid paying high-cost interest charges and may protect your credit score at the same time. However, some consumers might opt to carry a balance on a credit card when they need access to quick financing. It can also be easy to revolve a credit card balance from one month to the next without planning for it due to overspending habits or not using a budget. 

“Credit cards are a double-edged sword – while they offer real-time convenience, they easily become a financial burden with increasingly high-interest rates,” says Michael Hershfield, founder and CEO of Accrue Savings. “Aim to pay balances monthly, curb unnecessary spending, and treat credit cards as tools for empowerment, not financial traps.”

Whatever the cause of your credit card debt, at some point you might start to wonder if you’re in over your head. There’s no universal answer to the question, “How much credit card debt is too much?” But there are ways to figure out if you could be taking on too much risk for your financial and credit situation, and we’ll provide some helpful context and tips for this analysis.

Do I have too much credit card debt? 

The average credit card balance in the United States is $7,951, according to our analysis of data from the Federal Reserve Bank of New York and the U.S. Census Bureau. Yet, even if your overall credit card debt falls far below the national average, it’s still possible you might be carrying too much credit card debt for your financial situation. 

As mentioned above, zeroing out your credit card balances each month is the best way to manage your accounts and avoid interest. But if paying off your full balances isn’t an option right now, you can determine if you owe too much credit card debt by asking a few questions: 

• Are you spending more money than you earn? 
• Do you struggle to pay your bills? 
• Are your credit card balances increasing each month? 
• Can you pay more than the minimum payments on your credit cards? 
• Are you able to save money for emergencies and other financial goals? 
• Is the balance-to-limit relationship (aka utilization ratio) high on any of your credit cards?  
• Do you worry that you’re wasting money on interest charges? 

If you answer yes to any of the questions above, it could be a warning sign that you have too much credit card debt. 

How credit card debt affects you

Using your credit card to pay for most spending can be a smart way to enjoy many different perks, from the potential to build credit to fraud protection. And rewards credit cards can offer a chance to earn points, miles, or cash back on purchases you need to make anyway. 

But for this strategy to work, you should pay your credit card on time and in full each month, or credit card debt can have a negative impact on your life in several ways. Allowing such debt to accumulate can hurt your finances and damage your credit score even if you pay the minimum due on time each month. 

Over the past several years, the average credit card rate on accounts incurring interest has fluctuated from around 16% to upward of 20%, according to the Federal Reserve — and some credit card APRs can climb even higher. As a result, carrying a balance on a credit card can be an expensive form of financing (unless you’re taking advantage of a 0% APR credit card offer). 

For example, if you carried a consistent balance of $10,000 on a credit card with a 20% APR, you would pay around $165 in interest each month.

Being in credit card debt could also contribute to a bad credit score. Credit scoring models like FICO® and VantageScore® consider a factor known as your credit utilization ratio — the relationship between your credit card limits and balances. When this ratio increases, your credit score will typically decrease in response. In other words, the closer you get to maxing out your credit cards, the lower your credit score is likely to dip.

Using less of your available credit is better from a credit scoring standpoint. In general, you should aim to keep your credit utilization rate below 10% and always pay your credit cards on time. For example, if you have a credit card with a $500 limit, a $50 balance would be 10% utilization on that card.

How to get out of credit card debt

If you’re ready to start paying down your credit card debt, the following tips may help:

1. Choose a debt payoff strategy. A solid debt elimination strategy could help you get out of debt faster than just making payments here or there and perhaps save you money along the way. The debt snowball and debt avalanche are two of the most popular approaches to getting out of credit card debt. Both strategies involve paying off your credit card balances in a particular order — either starting with the account that has the lowest balance or the highest interest rate. There are benefits to both approaches, but you’ll want to research to figure out which makes the most sense for your situation.  
2. Cut expenses. Finding ways to cut expenses and reduce your spending could free up extra cash in your budget that you could apply toward paying down your credit card debt. 
3. Consider debt consolidation. If your credit is in decent shape, you might be able to qualify for a balance transfer credit card or a personal loan to consolidate your credit card debt. Consolidating debt at a lower interest rate is one potential solution that could help you save money on high interest charges as you work to pay down your outstanding balances. Note that it’s critical to avoid overspending on your original accounts after you consolidate them. Otherwise, you could create bigger financial problems down the road.  

Tips for managing multiple credit cards

The average American has 3.84 credit card accounts, according to the latest data from Experian. And while there’s no perfect number of credit cards, many people do benefit from keeping multiple credit cards in their wallet. 

Wondering how many credit cards you should open? It’s important to ask yourself how many accounts you’re confident you can handle in a responsible manner. Here are three tips that can help you manage multiple credit cards: 

• Track your spending. Whether you use a personal finance app or an old-fashioned spreadsheet to get the job done, it’s important to keep an eye on how much you spend on your credit cards so you don’t go over your budget. 
• Schedule automatic payments. It’s too easy to get busy and forget to make a payment by the due date, especially when you have multiple credit cards. But most credit card issuers will allow you to schedule automatic payment drafts from your bank account to help avoid these mistakes. 
• Set up transaction alerts. Your credit card issuer may offer transaction alerts (aka texts or emails) to let you know when certain activities take place on your account. For example, you might be able to schedule text alerts to notify you when your monthly due date is approaching, your balance is getting close to your credit limit or a transaction posts to your account above a certain dollar amount. 

Frequently asked questions (FAQs)

Editor’s note: This article contains updated information from previously published stories:

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