Why You Should Care About Your Credit Card Debt

And Not Just Make Minimum Payments

An illustration depicting people taking on a variety of personal finance tasks.

The Balance

Credit card debt can have far-reaching effects, even when you can manage the monthly payments. Carrying credit card debt costs you money in interest payments and limits your life choices, not to mention the impact it has on your mental and emotional well-being. If you’re interested in saving money, improving your credit, and having financial success, paying off credit card debt is key.

Credit Card Debt Is a National Problem

You’re not alone in dealing with credit card debt. With the total outstanding revolving debt standing at $979.6 billion, credit card debt is a problem for millions of Americans.

Consumer credit statistics from the Federal Reserve include credit card debt and other types of revolving debt, like pre-arranged overdraft plans. 

Credit monitoring firm Experian noted in its annual State of Credit Cards report that consumer credit card debt stood at $756 billion in 2020, down from $829 billion in 2019.

Drilling down even further, Experian’s report notes the average credit card balance stands at $5,315, down from $6,194 in 2019, a clear sign that credit card debt is headed in the right direction.

Why Credit Card Debt Is a Personal Finance Problem

It’s encouraging that credit card debt levels have dropped—average credit utilization is currently at 25%, the lowest in a decade, according to Experian—but consumers still have a ways to go. Even if you’re doing OK keeping up with your credit card payments, credit card debt may affect your life in ways you don’t realize or notice.

Credit Card Debt Is Expensive

Carrying a credit card balance means you have to pay interest each month until the debt is repaid. The higher the interest rate and the longer it takes you to pay off your balance, the more you’ll pay in interest.

For instance, a balance of $5,315 at the current average credit card APR of 20.24% wouldn’t be paid off for more than 16 years, during which you’d pay a total of $12,847.68 to the credit card company—$7,532.68 of it in interest. That calculation assumes you’d paid just the minimum due during that time (1% of the balance plus interest and a $35 minimum payment)—and that you didn’t add any more debt to the account.

Credit Card Debt Limits Your Financial Choices

Many of your financial decisions hinge on your credit score, a number that’s based, in part, on the amount of credit card debt you’re carrying. Higher credit card balances raise your credit utilization, drop your credit score, and make it harder to qualify for new credit cards and loans. That could mean it’s more difficult to buy a house or car when you’re ready to.

Credit card debt also reduces your cash flow, making it harder to save up an emergency fund, invest in retirement, or afford large purchases, even if your credit score is good enough for loan approval.

Credit Card Debt Affects Your Mind and Your Body

Debt is a burden on your finances, and it can be a cognitive burden, too. Researchers are discovering a link between debt and our ability to to think and make decisions. In one study, researchers found that impoverished people performed better on cognitive tests after they had received debt reduction payments. Debt can also harm us emotionally and physically. Researchers in another study linked high debt levels with depression, higher perceived stress levels, and higher blood pressure.  

Next Steps and More Resources 

The good news is that credit card debt is solvable. If you’re here, then you’ve probably decided to do something about your debt. The next step is figuring out how much you owe so you can begin to make a plan on how to tackle it. 

And if you’re still unsure about the dangers of credit card debt, here are a few more warnings: