What It Means
Credit card debt refers to the unpaid balances on credit cards that are carried from one billing cycle to the next. When you do not pay your full statement balance, the remaining amount becomes debt that accrues interest - typically at rates of 20-30% APR. Credit card debt is among the most expensive forms of consumer debt due to these high rates and daily compounding. Average American household credit card debt exceeds $6,000. The high interest rates make credit card debt particularly dangerous because balances can grow rapidly. Strategies for managing credit card debt include the snowball method, avalanche method, balance transfers, and debt consolidation loans. The best strategy is prevention: paying your full balance each month to avoid interest entirely.
Frequently Asked Questions
How much credit card debt is too much?
Any credit card debt that accrues interest is potentially too much. Specifically, if your credit card payments exceed 10% of your take-home pay or your utilization is above 30%, you should prioritize paying it down.
Should you pay off credit card debt or save?
Generally, pay off high-interest credit card debt first. The interest saved (20-30% APR) almost always exceeds what you would earn from savings (4-5% APY). Keep a small emergency fund, then aggressively attack debt.