What Is a Healthy Amount of Credit Card Debt?

Credit card debt is very common in the United States. In fact, the average credit card debt per American adult is around $6,500. But just because it’s common, doesn’t necessarily mean it’s healthy. So what exactly is considered a “healthy” amount of credit card debt?

How Credit Card Debt Can Get Unhealthy

First, let’s talk about why having a credit card balance can be a problem. Here are some of the biggest issues:

• High Interest Rates: The interest rates on credit cards are usually a lot higher than those on other loans or lines of credit. The average credit card APR is close to 22%. That high interest rate makes your debt grow very quickly if you have a balance.

• Minimum Payments: Most credit card companies only want you to pay a small amount each month, usually between 2% and 3% of your balance. It takes a lot longer to pay off your debt when you only make the minimum payment, which means you pay more interest.

• There is no clear date for paying off credit card debt. Unlike installment loans, there is no set date for paying it off or monthly payment. Since you have to pay it back, it can be hard to know what to do next.

• Credit Score Damage High credit card balances can negatively impact your credit scores, making it harder to qualify for loans or credit cards with good terms in the future

• Spiraling Balances: It’s easy for credit card balances to slowly but steadily increase over time, especially if you rely on cards for everyday spending. Before you know it, your debt can snowball out of control.

Signs Your Debt Level Is Becoming Unhealthy

Watch out for these signs that your credit card debt may be creeping up to an unhealthy amount:

• You’re only able to make the minimum monthly payments on your cards.

• Your cards have high credit utilization rates, say over 30%.

• You’ve needed to open new cards to transfer balances or get access to more credit.

• You struggle to pay other monthly bills because of large credit card payments.

• Your credit scores have started to decrease because of high balances.

• You have to use credit cards to pay for necessities like groceries and utility bills.

• Your debt feels like a heavy burden causing stress and anxiety.

What’s Considered a Healthy Amount of Debt?

So when does credit card debt cross the line from being manageable to unhealthy? Unfortunately there’s no simple formula or dollar amount that applies to everyone. A $10,000 balance might be reasonable for someone earning $150,000 annually but create a huge hardship for someone making $30,000 per year.

That said, a good general guideline is that your credit card debt should not exceed 10% of your annual gross income. This limit helps ensure your debt stays at a manageable level relative to your earnings. It also keeps your credit utilization in the optimal range of less than 10%.

Here are some other signs your credit card debt load is still healthy:

• You pay off your monthly statement balances in full each billing cycle.
• Your minimum payments are under 5% of your monthly take-home pay.
• You have a plan and timeline for getting out of debt within 6-12 months.
• Your credit scores are in good to excellent range (690+ on FICO scale).
• Your debt isn’t causing financial stress or preventing other spending goals.

How to Get Unhealthy Debt Back to a Healthy Level

If your current credit card debt looks unhealthy based on the above criteria, take action to get it back down to safer levels. Here are some tips:

• Make a Budget: Track your income and expenses so you can allocate as much money as possible towards credit card payments. Look for areas to reduce spending.

• Pay More Than Minimums: Commit to paying more than the minimum payment each month to pay off balances faster. Even a few extra dollars can make a difference.

• Consolidate Debt: Combine multiple balances into one through a balance transfer card or a personal loan with a lower interest rate. This simplifies payments.

• Try Debt Payoff Methods: Use strategies like the debt avalanche or debt snowball method to pay off cards methodically.

• Lower Interest Rates: Talk to your card issuers about reducing your interest rates. Or transfer balances to a card with a lower introductory APR.

• Consider Credit Counseling: Non-profit credit counseling agencies can offer debt management plans with negotiated lower interest rates.

• Increase Income: Bring in more money by asking for a raise, finding a side gig, or selling unused items. Use that cash towards your card payments.

• Limit Card Use: Reduce reliance on credit cards until your balances are paid down. Only use for essential purchases you can afford to pay off monthly.

The most important thing is to take a proactive approach. With focus and discipline, you can eliminate unhealthy credit card debt and achieve a balance you can more comfortably manage long-term. Don’t get discouraged if it takes some time. Stay positive and stick to your debt payoff plan.

Healthy Credit Card Habits to Adopt

Once you’ve paid down your balances to a healthy amount, adopting smart credit card habits can keep your debt from ballooning again. Try to:

• Pay your balances in full each month
• Use cards mainly for convenience and benefits, not financing purchases
• Put everyday purchases on rewards cards paid off monthly
• Have no more than 3-4 open credit cards at once
• Keep utilization under 10% on each card
• Set up automatic payments to avoid missed payments
• Review statements closely each billing cycle
• Increase credit limits only as needed to keep utilization low
• Avoid paying only minimum payments
• Have a plan for paying off large purchases over several months

The Bottom Line

There’s no magic number that determines whether your credit card debt is at healthy level. It depends on factors like your income, other debts and ability to make payments comfortably. As a general rule, if your debt causes undue financial stress or damages your credit, it’s become unhealthy. Take proactive steps to pay down your balances and adopt habits that prevent debt from creeping up again. With diligence and commitment, you can manage credit card debt in a way that builds your financial health rather than harming it.