How much of a balance do you have on your credit card right now? A few hundred dollars? A thousand? Living in a time of massive student debt, a small credit card balance may not seem like a big deal.
Until it does.
No matter how much you’re carrying on a credit card, that balance can start picking up steam fast. Carrying that balance does not help you build a credit score, as some people believe. When it comes to the perfect balance to carry from month to month, no amount is better than zero.
Read on to find out why you shouldn’t discount the high cost of even the smallest debt.
Average credit card debt in America
The ordinary American carries more than three credit cards with an average credit card debt of anywhere from $1,600 to $6,800 (depending on the cardholder’s age). What’s more, people carrying a balance aren’t necessarily making large strides to pay them off.
According to a report from the CFPB, “In any given month, about 15% of accounts make exactly the minimum payment. Another 19% pay near (and above) the minimum amount, and a third of accounts pay in full. The remainder either pays under the minimum or some intermediate amount between full and near-minimum.”
In other words, 34% of people are either making their minimum payment only or paying just a little bit more than the minimum. Here’s why that’s a problem.
Calculate credit card interest to understand the danger
Thanks to the way issuers calculate credit card interest, sticking to the minimum payment is a recipe for debt. Even the smallest balance can turn into an insurmountable load within a few months or years.
Using a credit card debt calculator, let’s look at an example using an average interest rate of approximately 12.51 to 13.76%.
With a 12% interest rate and a 2% monthly minimum payment, it would take you 70 months to repay a balance of $1,600 making only the minimum payments. On top of that, you’ll pay $630 in interest — bringing the total amount paid on your $1,600 balance all the way up to $2,230.
A credit card balance of $1,600 doesn’t sound like much at first, but more than five years of payments and $600 in interest later, suddenly it’s not so easy to manage.
Keep in mind that we’re working with averages and estimates here. If the time and money spent paying off these balances don’t alarm you, listen up. Many credit cards have interest rates of 20 percent or more. That means the example above is on the very low end of what you might encounter in real life.
How to fight against credit card interest
So what’s the best way to win the fight against credit card interest? Get ahead of it before it grows uncontrollably. Pay off your credit card balances as quickly as you can; keep using your credit card if you want, but pay it in full every month.
I know paying off a credit card balance is easier said than done, but there are steps you can start taking now to do it. Here are three things you can do to get ahead of credit card interest.
1. Get a balance transfer credit card
The first thing to try is a balance transfer credit card. Balance transfer credit cards usually come with a 0% interest rate for the first six months to one year, and they’re used to pay off your existing credit card (or cards).
Giving yourself a chance to make payments with no interest can help you seriously get ahead on your balance. Just make sure you never make a purchase on the new card (as that will come at a higher interest rate) and make a plan to pay it off before the 0% interest offer expires.
2. Ask your credit card issuer to lower your interest
A simple phone call could help you get ahead of credit card debt. Call your credit card issuer and ask them to lower your interest rate. If you have a positive history with them (read: on-time payments), then there’s a good chance they’ll help you out.
I tried this once before when I couldn’t get a balance transfer credit card and managed to get my interest lowered from 24% to 11%. I kept paying more than the minimum and eventually qualified for a balance transfer credit card at 0% for 24 months. With that, I was able to eliminate a $2,000 credit card balance that I’d been fighting for five years.
3. Use the debt avalanche method
Finally, if you’re battling several credit cards and can’t consolidate them with a balance transfer, then it’s time to employ the debt avalanche method. With this, you’ll target your highest interest rate credit card first.
Here’s how it works: Line your credit cards up from the highest to lowest interest rate and number them accordingly. If you’re able to pay more than the minimum payment, apply the extra money to the highest-interest card first while paying the minimum on the rest.
Once the first card is paid off, apply the whole amount you were paying on it to the second one (on top of the minimum). Keep doing that until you’re debt-free.
Don’t be defeated by average credit card debt
It’s easy to feel defeated once you see how long it can take to pay off even the smallest of credit card balances. But don’t let this knowledge defeat you — let it motivate you.
None of us should discount the high cost of small debt. But if you’re already in that boat, you can make headway and pay off that balance once and for all. Try the tips above and stay focused.
With patience and persistence, you can win against the high cost of credit card interest.
Interested in a personal loan?Here are the top personal loan lenders of 2020!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Opploans.
Direct Deposit required for payroll.
Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.
3 Includes AutoPay discount. Important Disclosures for Payoff.
4 Important Disclosures for FreedomPlus.
5 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
6 Important Disclosures for LendingPoint.
7 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
8 Important Disclosures for Earnest.
9 Important Disclosures for Avant.
*If approved, the actual loan terms that a customer qualifies for may vary based on credit determination, state law, and other factors. Minimum loan amounts vary by state.
**Example: A $5,900 loan with an administration fee of 4.75% and an amount financed of $5,619.75, repayable in 36 monthly installments, with an APR of 29.95% would have monthly payments of $250.30.
Based on the responses from 11,574 customers in a survey of 210,584 newly funded customers, conducted from 1 Feb 2018 – 1 Aug 2019 95.05% of customers stated that they were either extremely satisfied or satisfied with Avant. 4/5 Customers would recommend us. Avant branded credit products are issued by WebBank, member FDIC.
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.99% – 20.01%1||$5,000 - $100,000|
|6.14% – 35.99%||$1,000 - $50,000|
|6.98% – 35.89%*||$1,000 - $50,000|
|99.00% – 199.00%2||$500 - $4,000|
|5.99% – 24.99%3||$5,000 - $35,000|
|5.99% – 29.99%4||$7,500 - $40,000|
|6.79% – 20.89%5||$5,000 - $50,000|
|9.99% – 35.99%6||$2,000 - $25,000|
|6.95% – 35.89%7||$1,000 - $40,000|
|5.99% – 17.24%8||$5,000 - $75,000|
|9.95% – 35.99%9||$2,000 - $35,000|