How much Credit Card Debt is OK?
Over half of American households have some form of credit card debt, and these households owe an average of nearly $16,000 according to Money Magazine. If your debt is similar, then you probably think that your just like everyone else, so your credit card debt is ok.
The truth is that this figure shocks most personal finance experts because it is alarmingly high. While most personal financial advisors push their clients to eliminate credit card debt completely, it’s generally considered a good idea to keep the payments on credit card debt to less than 10% of take-home pay.
For example, if a person makes $3000 a month after taxes, then he or she should have minimum payments on their credit cards of no more than $300. That would be the minimum payment due on roughly $15,000 of debt (keep in mind that terms vary from card to card). Therefore, a person making about $36,000 a year should have no more than $15,000 in credit card debt. In general, this works out to be a total debt amount of half a person’s take-home pay.
Keep in mind, of course, that this is a general rule meant to give financial professionals a quick and easy way to evaluate their clients’ finances. It does not apply to everyone. For example, a person who took out a lot of debt to start a business might have a good plan to pay off the debt and not be in trouble. On the other hand, a person who has a lot of other financial obligations could be in real trouble even though they devote only 5% of their take home pay to the minimum payments on their credit cards.
If you think you have too much debt, then you need to take steps to reduce what you owe and how much you’re paying each month. A debt consolidation could be the right answer. These loans pay off all of your current debts and replace them with one loan that has a low payment. By working with a debt counselor, you’ll be able to find a loan with a payment that you can afford.