If you’re like the 49% of U.S. cardholders who carry a credit card balance from month to month, you may have already felt the negative impact of high interest rates and more debt than you know what to do with. With interest rates at 24.84% as of July 2024, paying down your monthly balance can help you stay out of debt and avoid paying more over time.
Here’s why carrying a balance each month can be bad for your credit and how you can get out of debt:
1. The Accumulation of Debt and Interest
Currently, interest rates are at historic highs, so carrying a balance each month has never been so risky. Interest compounds fast, especially when you’re continually spending and only paying the minimum toward your balance. Ultimately, you’ll end up paying more than you would have if you’d just paid it off sooner.
2. Your Credit Score Could Take a Dive
Carrying over a balance each month means you’re carrying debt over each month. If you’re having issues making payments on time or all together, your credit score will likely be impacted. Your credit utilization ratio is also an important part of your score at 30%. This is the portion of your available credit. The rule of thumb is to use no more than 30% of your credit utilization, otherwise, your credit score can be negatively impacted.
Enroll in a Debt Management Program
Whether you’re having problems making payments or are making regular payments but are still struggling, a credit counseling agency may be able to help. Certified credit counselors can help you create a budget for your specific needs and enroll you in a debt management program. This allows them to work with your creditors to consolidate your loans into one reduced payment and lower your interest rates, so you can pay off your credit cards in three to five years.
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Knowing your options can help you prepare your finances for the next step, whatever that may be.
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