How Much Is OK To Have on Your Credit Card Balance?

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Almost 85% of Americans own at least one credit card, according to a GOBankingRates survey of over 1,000 adults. About 71% carry some credit card debt, with a third of people owing at least $1,000.

If not paid off properly, credit cards can hurt your credit health. Here’s what financial experts recommend when it comes to your credit card balance.

Try To Pay Your Balance in Full

Most Americans (37%) pay off their credit cards completely each month, GOBankingRates found. However, nearly 12% make only the minimum payment, and 19% pay more than the minimum but never the full balance.

The first time you can’t pay off your credit card balance in full is a sign your spending is too high, explained David Blaylock, a CFP and head of financial planning at Origin, an employee financial wellness platform.

“Ideally, one would pay their balance in full every month,” he said. “This would ensure that no hard-earned money is going to pay interest on the debt.”

Keep Your Balance Less Than 25% of Your Available Credit

For over 21% of Americans, their main reason for owning a credit card is to build or repair credit. If that’s your goal, too, then pay close attention to how high you should let your balance get.

After all, how much of your available credit you use can have a direct impact on your credit score — at least until you pay off the balance.

“You should always attempt to keep your balances to less than 25% of your available credit,” Blaylock said. “This will reduce the impact on your credit score and make it easier to pay off quickly. While this is a rule of thumb and there may be exceptions, one should be mindful of how much they’re spending on interest payments and the impacts on their credit score.”

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Save for Larger Purchases

GOBankingRates found that 7% of Americans use their credit cards primarily to finance large purchases. But be cautious of going this route too quickly, Blaylock warned.

“If you are considering paying for a major purchase with your credit card, make sure you can pay the balance in full in a relatively quick time frame,” he said. “This will keep the amount of interest you pay for a purchase as small as possible.”

If you have a large purchase to make, consider saving until you can cover it in cash. That way, if you choose to use your credit card (whether for points or to improve your score), you still can pay the balance in full.

Focus on Paying Down Your Credit Card Debt

Over 71% of Americans have some sort of credit card debt, the GOBankingRates survey revealed, and more than 5% have over $10,000 to pay off.

Unfortunately, credit cards tend to have higher interest rates than other types of debt, such as mortgage loans or student loans. Many credit cards are raising interest rates to 20% or higher, said Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth.

“Paying off your credit cards needs to be a focus,” he said. “Start by locking your credit cards to stop taking out more credit. Then make paying off the debt a goal, such as paying off $6,000 this year. You would then budget $500 per month toward paying off your cards.”

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Set a Reminder To Pay Your Cards

Forgetting to pay your credit card bills entirely can lead to hefty interest payments and unpleasant late fees.

“If you fail to make any payment at all, expect to get hit with late fees,” said Richard Barrington, a financial analyst for Credit Sesame. “That will tighten next month’s budget even more. This will continue every month until you catch up on your payments.”

If you continue not making your payments, your credit card company could even cancel your account, which could damage your credit history.

“If you think you can simply go out and get another credit card, guess again,” Barrington said. “Credit payment history is recorded by three credit bureaus and is used to determine your credit score. Credit card companies, lenders and other companies look at your credit score when deciding whether or not you can be trusted financially. Missed payments stay on this record for years; so, if you stiff one lender, you’ll be treated as if you’ve stiffed them all.”

It may be helpful to set a smartphone reminder to pay your bill — or to set up automated payments. If you do automated payments, be sure to keep track of your credit card spending to make sure your monthly payments don’t exceed your budget.

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