Your Small Credit Card Balance Costs More Than You Think

average credit card debt

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.

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LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000
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4.98% - 14.24%1$5,000 - $100,000
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8.00% - 25.00%$5,000 - $35,000
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5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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