It depends on your income. If you have an income where you can pay off that amount relatively quickly, then a $5k debt is no problem. Presumably you don't have the funds to pay it off. There are other things in life that you can be fare more stressed about, but you are burning money by carrying the debt.
Transferring your balances to a single loan or card with lower rates can save you money on interest and help you pay off debt faster. Paying off $5,000 in debt can take anywhere from six months with a balance transfer card to almost 19 years if you just make minimum payments.
If your result is less than 36%, your debt load is affordable, according to NerdWallet. If it's between 36% and 50%, consider taking action, such as consulting a nonprofit credit counseling service, to reduce your debt. 50% or more is “high risk,” NerdWallet says and suggests getting advice from a bankruptcy attorney.
Running up $50,000 in credit card debt is not impossible. About two million Americans do it every year. Paying off that bill?
At the close of 2019, the average household had a credit card debt of $7,499. During the first quarter of 2021, it dropped to $6,209. In 2022, credit card debt rose again to $7,951 and has increased linearly. In 2023, it reached $8,599 — $75 shy of the 2024 average.
Execute a balance transfer strategy
For example, transferring $5,000 to a balance transfer card with a 0% APR and paying about $417 a month would eliminate the debt in a year (assuming no balance transfer fee).
You don't want to check your debt-to-income ratio every time you make a few charges. So, there's an easier ratio you can use to measure when you have too much credit card debt. It's your credit card debt ratio. Generally, you never want your minimum credit card payments to exceed 10 percent of your net income.
Key takeaways
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
The average FICO credit score in the US is 717, according to the latest FICO data. The average VantageScore is 701 as of January 2024.
For example, consider that your credit card has a $10,000 limit. If you spend $3,000 of that limit, you have a credit utilization ratio of 30%. Generally, anything between 1% and 30% is manageable for most consumers. If someone exceeds 30% of their credit utilization ratio, chances are they may be in too much debt.
It will take 32 months to pay off $5,000 with payments of $200 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
Gen X (ages 43 to 58) not only carries the most debt on average of all the generations, but is also the debt leader in credit card and total non-mortgage debt.
Credit card debt is a common problem that can empty your wallet, drag down your credit scores and even strain your mental health.
On a credit card with a $5,000 credit limit, it's good to shoot for about $500 to $1,500 max. Hot Tip: Don't confuse your credit card limit or ideal utilization ratio with your spending budget. It might be good for your credit to spend about $500 on a card with a $5,000 credit limit each month.
Overall, the national average card debt among cardholders with unpaid balances in the third quarter of 2024 was $7,236, up from $7,130 in the second quarter. That includes debt from bank cards and retail credit cards. Six states spread throughout the nation have average balances of at least $9,000.
A debt that has a high interest rate or fees could also be considered bad debt, even if you use the debt for an essential purchase. One way to compare loans is to calculate the annual percentage rate (APR) of the various options to see which one will cost more on an annualized basis.
By the time you reach your 40s and 50s, debts should be lower or almost gone. Student loans should be non-existent, you may be paying for cars in cash, you might be pre-paying your mortgage, and credit card debt should not exist.
$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt. There are a few things you can do to pay your debt off faster - potentially saving thousands of dollars in the process.
According to Experian, average total consumer household debt in 2023 is $104,215. That's up 11% from 2020, when average total consumer debt was $92,727.
If you're using more than 30% of your available credit, it could be a sign that you are overreliant on credit cards and could be headed for trouble. A high utilization ratio not only indicates potential financial stress but also negatively impacts your credit score.
We have a range of policies and programs to accommodate customer hardships. For customers who let us know they are being impacted, we are here to support and work with them. We are offering assistance to consumers and small business owners, including waiving fees or deferring payments on credit cards or auto loans.
While there are no government debt relief grants, there is free money to pay other bills, which should lead to paying off debt because it frees up funds. The biggest grant the government offers may be housing vouchers for those who qualify. The local housing authority pays the landlord directly.