How much credit card debt is too much? Tips for recognizing and dealing with it

Never mind about the neighbors. Your level of comfort with debt is for you alone to decide. The amount that you feel is too much might be well within someone else’s comfort zone, and that’s fine. 

Even so, there are some red flags to be aware of. If warning bells start ringing for you, that’s a great time to start formulating an action plan to bring your debt down to a level that you can manage. Let’s get started.

Know what you owe

A financial checkup is a great idea for anyone, especially if you aren’t quite sure where you stand. Get a notebook or spreadsheet ready—or use an app like Achieve GOOD to get a clear view of all your debts.

Start by pulling together all of your recent credit card statements, online or on paper, so that you can make a list. To make sure you’re tallying all of your debts, you can also check your credit report at each of the three major credit bureaus. You can get a free copy of each credit report once every 12 months by visiting AnnualCreditReport.com.

List your credit accounts

Your credit reports will list:

• For each of your credit cards, your credit limit, and the amount you currently owe

• Personal loans and lines of credit

• Lenders’ names and sometimes also their contact info

• For home mortgages and car loans, the original loan amount and the most recent balance

Make sure each loan reported on your credit report belongs to you. If you don’t recognize an account, call the lender and ask for details about the loan. If something doesn’t add up, follow the credit bureau’s process for disputing the item and asking for it to be removed from your credit report.

List your balances and check your credit utilization

An important measure of your credit card debt is how much of your credit limit you’re using on each credit card (this is called your “credit utilization”). Look at the amount you owe on each credit card and how much credit is still available. Your balance divided by your credit limit is your credit utilization ratio. For instance, if your credit card has a $1,000 limit and your balance is $600, your utilization is 60%.

$600 / $1,000 = 0.60 (or 60%)

You want your credit utilization ratio to be as low as possible. If your cards are maxed out or have very little available credit, you might be in a debt trap (or headed toward one). 

Only unsecured revolving debt counts toward your credit utilization ratio (in other words, credit cards and personal lines of credit). Personal loans, mortgages, student loans, home equity loans, and HELOCs don’t factor in. 

List your monthly payments and your interest rates

Finally, look at the monthly payments you owe on your credit cards and the interest rate you’re paying on each account. Sometimes different portions of your balance have different interest rates, so look at your statement closely.

How do you know when you have too much debt?

Once you understand how much you owe and who you owe it to, you can take a realistic look at whether you can afford your current credit card debt. Here are some red flags to keep an eye out for.

You can't afford the monthly payments

Once you’ve added up the minimum monthly payments for all your credit cards, it’s time to decide whether you can afford them. Is your budget strained? Are you using balance transfers because you can’t afford the payments? Is your credit card balance going up because your purchases are bigger than your payments? If you can’t afford to pay off all your new charges each month, you might be in trouble. 

If you can’t afford to make your minimum payments, it’s time to explore taking bigger steps for getting out of debt.

Your accounts are maxed out

Are some of your credit card accounts already at or near their credit limits? If you’re struggling to bring the balances down, that might mean that your debt is unaffordable. Also, if your accounts are maxed out, you may not have enough credit to cover unexpected expenses like car repairs or medical bills.

You take cash advances 

Many credit cards allow you to withdraw part of your available credit as cash. If you’re thinking of taking out cash advances, you may have a serious debt problem. That's especially true if you’re using cash advances to make payments on other debts.

You’re stressed by your credit card debt

If you’re losing sleep over your debt, it doesn’t matter if you owe $100 or $100,000. It’s too much debt if it’s causing you anxiety. Debt stress can do long-term damage to your physical and emotional health—as well as to your relationships with loved ones. If you’re feeling stressed about your credit card debt and it’s affecting your mood or behavior, you’ll do yourself a kindness if you call it “too much” debt and make a plan to knock it down.

Tips for conquering your debt

If you’re feeling overwhelmed by your credit card debt, you’re not alone. We’ve been there. Here are some tips that could help get your debt under control.

Stop using your credit cards

It’s very hard to make headway against credit card debt if you keep adding to it. Consider locking your credit card accounts (or even closing them) and using only a debit card or cash for a while.

Make your monthly payments on time

If you can afford it, make at least the minimum monthly payment on all your credit cards by the due date each month. If you can at least make the minimum payment and you stop making new purchases, you’ll eventually pay off your credit card debt.

If you can’t afford to make the monthly payments on all your credit cards, it may be time to get a helping hand from a professional. A debt advisor can walk you through your options, provide a free assessment of your financial situation, and even explain when credit card debt forgiveness is possible.

Pay more than the minimum

If you can afford it, pay more than the minimum payment.

Credit card accounts tend to have very low minimum monthly payments. If you pay the minimum, it might take decades to pay off your balance (depending on how much you owe). Here’s an example. If you owe $5,000, the interest rate is 24.99%, and the minimum payment is 3% of your balance each month, it’ll take you more than 25 years to pay off what you owe, and you’ll eventually pay back more than $15,000.

Use the debt snowball or avalanche method

If you can afford to pay more than the minimums, choose one debt for all that extra payment love. 

Two strategies for paying down debt are the debt snowball and the debt avalanche. You’ll prioritize your debts based on which strategy you choose.

If you use the snowball method, you’ll make the minimum payment on all of your debts except the smallest one. On that one, you make the minimum payment plus all the extra cash you can come up with. Once that card is paid off, you move on to the next lowest balance. Starting with the smallest balance could get you to your first payoff faster. 

The debt avalanche technique puts the highest priority on accounts with the highest interest rates. This technique may save you more money than the debt snowball over the long term, but if your most expensive debt isn’t your smallest debt, it may take longer to reach that first payoff milestone.

Use a debt consolidation loan

A debt consolidation loan is a new loan that you use to pay off multiple smaller debts. There are a few kinds of credit card consolidation loans.

A home equity loan or home equity line of credit lets you borrow against your home equity. 

For a personal loan, you don’t have to own anything of value that you can borrow against. 

If you can consolidate all your credit card debt into a single monthly payment and potentially also lower the interest rate, you can start on the road to freedom from credit card debt.

Seek professional help or counseling

If you’re worried you have too much credit card debt, a professional financial counselor can help you create a plan to regain control of your financial situation. When choosing a debt counseling service, look for one accredited by a national outside organization like the National Foundation for Credit Counseling.

If you intended to repay your debts but your circumstances have changed and you genuinely can’t, you might be a candidate for debt resolution. This is a process where you negotiate with your creditors to reduce the amount you owe. Anyone can do it, but it may be easier to work with a professional debt resolution company that has a lot of experience negotiating with creditors. 

Consider lifestyle changes you can live with

Credit cards can be an absolute lifesaver. For example, it can make a lot of sense to charge unexpected expenses like car repairs or last-minute plane tickets to a credit card as long as you plan to pay it off.

But some credit card debt is more of a convenience than a necessity. Look at your credit card charges and honestly ask yourself if there are purchases you can cut back on or avoid repeating. If you buy coffee every morning on your way to work, start brewing coffee at home. Carpool to save money on gas. Even dropping one or two car trips a week can save you hundreds of dollars in gas that you can use to pay down your credit card debt.

If you have a flexible schedule, you might consider picking up some gig work through sites like DoorDash or Uber Eats. Earning a few hundred dollars a week running errands for other people can go a long way toward paying your debts.

The last big change is one that you might have already made, considering you’ve reached the end of this article. That’s becoming willing to acknowledge your debt and do something about it. Congratulations. The first step is the biggest, most important one.