How Much Credit Card Debt Is Too Much?

You look at your credit card balance as it grows and grows every month and get a surge of anxiety. “But having debt is normal,” they say. There must be a point where it’s okay. After all, everybody says that credit card debt is only a problem when you can’t make the payments. Debt’s just a part of life, right?

Wrong!

As the Bible says, “The borrower is slave to the lender” (Proverbs 22:7 NIV). You could be the most responsible person in the world, but you’re still playing with snakes when you use a credit card—and snakes bite eventually. So, let’s switch our thinking from “how much credit card debt is too much?” to “how can I get rid of credit card debt for good?” That’s the only way to be safe from debt.

What Is Credit Card Debt?

Credit card debt is money you owe the credit card company from the moment you swipe that plastic or click “buy now”—whether you carry a balance to the next month or not.

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Where are you really at with money?

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Every purchase on a credit card is a loan—you’re spending the bank’s money and promising to pay it back. Sure, you get a grace period of about 25 days to repay that loan before the lender charges interest. But if you ever carry a balance past that window, the bank starts charging you for it, usually at a variable interest rate. And keep in mind that the average interest rate is 22.15%!¹

In total, Americans are carrying $1.26 trillion in credit card debt.² Here’s how the average balance breaks down by generation:³

That’s crazy! What’s even crazier is that the culture treats those balances like they’re normal. Many Americans have more than one card.

Is There a Healthy Amount of Credit Card Debt?

Short answer: No. There’s no dollar amount that makes credit card debt healthy. And paying the statement in full every month doesn’t change that either. Debt that’s manageable today can easily turn into a problem tomorrow if the balance gets too big or some other financial catastrophe happens (like losing your job). Besides, who wants to pay way more for something thanks to interest?

Debt is “normal” in America, so normal has become the excuse. You hear it all the time: “Oh, but I pay my card off every month.” Or “I only use it for the airline miles.” But can we take a minute and talk about all those fancy rewards and points? Because the reality is, they just aren’t worth it.

Look, the credit card companies aren’t stupid. They aren’t doing you a favor out of the goodness of their hearts. Judging by the ginormous buildings they’re headquartered in, your 2% cash back and airline miles are half a drop in their bucket. And those points and perks you collect are purchased on the backs of other cardholders who are paying exorbitant fees and interest rates to keep their balances current. And while that might not be your fault or responsibility, you don’t have to make it worse by contributing to the cycle.

That’s why we say credit card debt should be at zero. Not a lower number. Zero.

What Are the Warning Signs Your Credit Card Debt Is Too Much?

The number one sign you have too much credit card debt is this: You have a balance. That's it. Doesn't matter how big or small it is—if you have one, it's too much.

The number one sign you have too much credit card debt is using the card and/or having a balance.

But that's not the only sign to look out for. Here are a few others:

• Making only the minimum payment, month after month
• Watching your balance climb instead of shrink
• Falling behind or missing a payment
• Living on a tight budget every single month, with no margin left over
• Getting cash advances, making late payments or spending over your limit
• Using cards to cover groceries, gas or other essentials

The Four Walls Test

There are four things everyone needs in order to survive: food, utilities, shelter and transportation—what we call the Four Walls. If a card payment competes with any of those for the same dollars, the debt has moved from dumb to dangerous.

The 25% Housing Test

If rent or a mortgage payment eats more than 25% of your take-home pay, there’s less room to cover everything else—which is exactly when a credit card starts filling the gap. That’s a bad position to be in, especially if you have a financial emergency of some kind.

What Do DTI and Credit Utilization Actually Tell You?

Both your debt-to-income ratio (DTI) and credit utilization (CU) percentage measure how much more debt a lender thinks you could handle. But neither one tells you whether the debt you already carry is okay (hint: It’s not).

What Is Debt-to-Income Ratio?

DTI is the percentage of your gross monthly income that goes toward debt payments, including credit cards, car loans, student loans and a mortgage. Lenders use DTI to gauge borrowing risk, but a low DTI doesn’t mean having debt is healthy, just that a lender will approve you for more of it.

What Is Credit Utilization?

Credit utilization is the percentage of your total available credit you’re currently using, and it’s calculated by dividing your total credit card balances by your total credit limits. It’s a major credit score factor, but a “good” utilization rate still just explains your relationship with debt, not the absence of it.

The bottom line is both these numbers just tell a lender how much more debt you can “safely” take on. And the only people benefitting from a debt cycle like that are banks and credit card companies.

What Does Too Much Credit Card Debt Actually Cost You?

It will cost you decades of payments and thousands of dollars in interest. That’s money that was yours and could have been used to build wealth for yourself and your family or invest for your future.

Want to see how much it costs? Here’s what that looks like on a balance of $6,000 at 22.15% APR, which is the national average.

If you pay only the minimum (which starts at about $171 on a $6,000 balance at 22.15% APR and decreases as your balance falls), it’ll take about five years to pay off and cost roughly $4,000 in interest! But pay a fixed $300 a month instead, and the same $6,000 is gone in a little over two years for about $1,500 in interest!

It’s the same debt at the same rate, but you save about $2,500 in interest just by paying more than the minimum payment. Imagine what you could do with all that money that would’ve gone to interest!

How Do You Get Rid of Too Much Credit Card Debt?

The first step in paying off credit card debt is to stop using the cards (seriously—cut them up!). After that, you total the debt, build a budget that protects your Four Walls, and attack the smallest balance first. We call it the debt snowball.

The debt snowball method is the proven payoff strategy that delivers actual progress and results. List balances smallest to largest, pay minimums on all but the smallest, and attack that one with every extra dollar. Once it’s gone, roll the payment into the next balance.

Why is the snowball better than, say, the debt avalanche? It’s true that the avalanche (where you pay off the debt with the highest interest rate first) wins on pure math, but only by a small margin. The snowball wins on behavior: A fast, early win builds momentum, and momentum is what gets people to the finish line.

The debt snowball is just one part of what’s called the 7 Baby Steps. This is the tried-and-true plan to kick debt to the curb and get yourself on some solid financial footing.

• First, build a zero-based budget—income minus expenses equals zero—with every dollar accounted for.
• Save a $1,000 starter emergency fund if you don’t have one (Baby Step 1).
• To start the debt snowball, list every debt balance, interest rate and minimum payment in one place.
• Attack your smallest balance with every extra dollar using the debt snowball (Baby Step 2).
• Increase your income or cut expenses further to speed up the payoff.

Boyd, a member of THE Ramsey Baby Steps Community on Facebook, knocked out a bunch of debt by following the Baby Steps:

“A little over two years ago, my wife and I were expecting a baby and facing about $100K in debt—$70K in student loans, $17,000 left on a car, and $13,000 in credit card debt. Big yikes!” Boyd said. “Feeling stressed and overwhelmed, I started listening to The Ramsey Show and convinced my wife to follow the Baby Steps to knock out the debt. It wasn’t easy (especially with a baby), but we had a plan and stuck to it. We thought this would take seven years to do. But surprisingly, momentum carried us and today, we made the last payment on the student loans to be officially debt-free! That feels pretty good to say.”

“A little over two years ago, my wife and I were expecting a baby and facing about $100K in debt—$70K in student loans, $17,000 left on a car, and $13,000 in credit card debt . . . Feeling stressed and overwhelmed, I started listening to The Ramsey Show and convinced my wife to follow the Baby Steps to knock out the debt. It wasn’t easy (especially with a baby), but we had a plan and stuck to it. We thought this would take seven years to do. But surprisingly, momentum carried us and today, we made the last payment on the student loans to be officially debt-free! That feels pretty good to say.”

— Boyd from Indianapolis, IN

And one more thing: Skip the debt consolidation loan or the 0% balance transfer. Both just move the debt around instead of getting rid of it.

Start Your Debt Payoff Plan With EveryDollar

People may tell you having a little bit of credit card debt is okay so long as you can control it. But the truth is, any amount of debt can grow and eventually overtake your income and your life. Stop feeding the beast—cut up those cards and pay off that debt ASAP!

In a culture where debt is normal, be weird.

If you’re ready to be weird and ditch the cycle of credit card debt, EveryDollar can help. It’s our zero-based budgeting app that makes planning your money easier.

Start EveryDollar for free today and find the margin you need to wipe out that debt—one dollar, one budget, one Baby Step at a time.