The general rule of thumb is that you shouldn't spend more than 10 percent of your take-home income on credit card debt.
If you're carrying a significant balance, like $20,000 in credit card debt, a rate like that could have even more of a detrimental impact on your finances. The longer the balance goes unpaid, the more the interest charges compound, turning what could have been a manageable debt into a hefty financial burden.
Running up $50,000 in credit card debt is not impossible. About two million Americans do it every year. Paying off that bill?
That top-line 43% threshold is also important because it's often the highest ratio lenders will accept. If your loan payments consume half or more of your monthly income, that may be a sign you have too much debt. As with most money matters, it's often how you feel that dictates if a circumstance is manageable.
The Bottom Line: Keep Control of Your Credit & Finances
There's no such thing as a bad number of credit cards to have, but having more cards than you can successfully manage may do more harm than good.
35% or less: Looking Good - Relative to your income, your debt is at a manageable level.
Here's the average debt balances by age group: Gen Z (ages 18 to 23): $9,593. Millennials (ages 24 to 39): $78,396. Gen X (ages 40 to 55): $135,841.
So, for the purposes of the study, Bank of America set a threshold — households spending at least 90% of their income on necessities could be considered living paycheck to paycheck. By that measure, around 30% of American households are living paycheck to paycheck, according to Bank of America's internal data.
There isn't a specific amount of credit card debt that's considered too much. Instead, it depends on your individual financial situation and how you're using your credit cards. U.S. consumers had an average total credit card balance of $6,501 as of the third quarter (Q3) of 2023, a 10% increase from the previous year.
For those who can't afford to pay off their credit card balance in full, McClary advises working toward a goal of putting 10% of your income toward this debt each month.
U.S. households average about $6,100 in credit card debt, as inflation and high APRs strain finances. Oct. 8, 2024, at 10:05 a.m.
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.
Credit card balances have become our emergency funds. About 55% of Americans live paycheck to paycheck, 36% have more credit card debt than emergency savings and 22% have no emergency fund at all. Many people lean into credit cards for emergency expenses not because they want to, but because they have to.
Age 35-44: Carrying an average credit card balance of $5480, you're in your prime earning years and you may be on your second or even third home. There could be an even larger family at this point and temptation to start cashing in on your years of hard work and higher salary.
U.S. consumers carry $6,501 in credit card debt on average, according to Experian data, but if your balance is much higher—say, $20,000 or beyond—you may feel hopeless. Paying off a high credit card balance can be a daunting task, but it is possible.
In general, most debt will fall off your credit report after seven years, but some types of debt can stay for up to 10 years or even indefinitely. Certain types of debt or derogatory marks, such as tax liens and paid medical debt collections, will not typically show up on your credit report.
The Standard Route is what credit companies and lenders recommend. If this is the graduate's choice, he or she will be debt free around the age of 58. It will take a total of 36 years to complete. It's a whole lot of time but it's the standard for a lot of people.
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 your monthly income is $2,500, your DTI ratio would be 64 percent, which might be too high to qualify for some credit cards. With an income of roughly $3,700 and the same debt, however, you'd have a DTI ratio of 43 percent and would have better chances of qualifying for a credit card.
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.
After all, the average American carries approximately $8,000 in credit card debt and with interest charges being calculated at today's high interest rates, it's surprisingly easy to find yourself trapped in a cycle of credit card debt with no end in sight.