What Is Considered Heavy Credit Card Debt?

by Kevin Johnston

We often hear we shouldn't carry too much credit card debt, but it's hard to tell how much is "too much." According to CreditCards.com, one reason people get into excessive debt it that they make the minimum payments on their credit cards without realizing the balance gets charged compound interest. Besides only being able to afford minimum payments, you can determine other ways to tell if you have too much credit card debt.

Percentage

You can figure what percentage of your take-home pay goes to pay debt. In Charge Debt Solutions says that if you spend more than 20 percent of your net pay on debt, you may have difficulty getting loans for large purchases and obtaining cash in emergencies. For example, if your paychecks give you a net of $4,000 per month and you pay $800 to credit cards, you are right at the 20 percent mark. Any higher and you could have too much debt. In a case like this, you could set a goal of reducing your debt so that your percentage of income going to credit cards is closer to 10 percent.

Time to Pay Off

You can get a dose of reality by calculating how long it will take to pay off your debt. The Federal Reserve offers a free calculator that allows you to determine the amounts you would have to pay to get rid of debt by specific deadlines. To pay enough to completely eliminate $10,000 in debt in four years, for example, you have to pay $294 a month. According to the Federal Reserve, if you paid a minimum payment at an initial rate of $200 a month -- the minimum payment it estimates on $10,000 -- it would take you 46 years to pay off the debt in full.

Average

You can compare your credit card debt to the national average. According to NerdWallet.com, as of Dec. 2012 the average credit card debt was $7,193. That doesn't mean if you fall below the average you still have room to accumulate debt. The further you are below the average, the better your chances of getting out of debt altogether.

Non-numerical Indicators

You don't have to run a bunch of numbers through a calculator to determine if you have too much debt. Forbes.com notes the American Bankers Association's lifestyle warning signs. If you often find yourself out of cash, pay your rent or mortgage late, or borrow from one card to pay another one, you have debt problems. Your short-term solution is to increase your income and your long-term solution is to pay down your debt.

Credit Utilization

Credit utilization refers to how much of your credit card limit you are using. According to myFICO, if you use more than 50 percent of your credit card limit, the Fair Isaac Corporation will lower your credit score. FICO assumes that the closer you get to your debt limit, the more likely you are to start missing payments.

About the Author

Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.

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