How Much is Too Much Credit Card Debt?

How much is too much credit card debt? If you're asking this question, you probably owe too much money on your card already. The financial industry believe that no more than 36% of your net monthly income should go towards servicing debt. This figure includes all forms of credit, including your mortgage and auto loans, so the amount is a lot less.

No more than 28% of net income should go towards mortgage repayments, so you may conclude that the answer is 8%. It's not that simple. There are bound to be variances between figures, but most lenders would be concerned if all of your debt was on your cards. They'd also be concerned if you were performing a succession of interest-free balance transfers to prevent your level of indebtedness from increasing.

How Much is Too Much Credit Card Debt?

Revolving credit, where there is no defined repayment term, is not a prudent way to borrow money over the long term. According to the Federal Reserve's G.19 report on consumer credit, the average APR in November 2010 was 13.67%. If you fail to repay the balance within the grace period, you immediately start to accrue interest. Pay late or exceed your limit and you'll face a charge. The Consumer Action credit card survey revealed that the average charge imposed by issuers was $28.19, up from $25.90 in 2008.

Too many American's fall into the trap of making just the minimum repayment each month, which could mean that the debt lasts indefinitely. For example, $10,000 of unpaid credit card debt will cost you $120 per month for the next 22 years. This works on the assumption that you make no further purchases, which is highly unlikely. How much is too much credit card debt?? Any outstanding balance on your card is very likely to be too much.

How Do I Become Free from Debt?

Your approach to paying off credit card debt will depend heavily upon your personal circumstances. The first thing you should do is put all of your sources of income and expenditure into a spreadsheet. This will enable you to scrutinize the figures to see if you're able to make any savings. Rather than paying the bear minimum each month, pay back as much as you can afford and stop making new purchases on your charge card.

If you owe too much money on your cards, it's time to seek advice and guidance from a non profit credit counseling service. They'll not only assist you with budgeting, they can also help you find a suitable debt relief program. How much is too much credit card debt? They'll review whether you need to take action to get your finances back on track.

Sources:

Woolsey, Ben. (Feb 11, 2011). Credit card statistics, industry facts, debt statistics.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 7 May 2011