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What Amount of Credit is Too Much?

Posted by Sami Thalji | Oct 07, 2022

How Much Credit Card Debt Is Too Much?

Credit card debt can be considered too much depending on the individual's financial situation and credit history. In the third quarter of 2021, the average consumer debt was $5,221. For some, this amount is too much, while for others, it's their average monthly spend.

On the surface, having zero debt sounds like a great idea. It implies that one has no obligations, which is often the case. Unfortunately, our system doesn't work this way.

Having a small, regular balance on credit cards can help lenders and credit card companies see that the person is responsible for their payments. This is because having a responsible credit card balance can help prove that one's financial responsibility is being carried out. One of the most important factors that lenders consider when it comes to assessing a person's credit history is the presence of a credit card balance.

How do I maintain manageable debt?

Credit utilization is a vital factor that affects a person's credit score. It shows how much of a credit card's available credit is being used compared to the amount of money it has available. It's generally advised that a person's credit utilization should stay below 30%.

Credit utilization is a fairly simple calculation to make. It involves adding up all of your credit cards' credit limits and the balances on each of them. After taking into account all of your debts, you'll arrive at a total credit limit. However, if your total balance exceeds 30% of the limit, you may be in over-debt.

Experts agree that people should maintain a credit utilization rate of around 1% to 10%. However, some banks and credit card companies prefer to see a person using revolving credit to pay off their balances responsibly.

If a person doesn't use their credit card, the card issuer loses money. However, if a person has too much credit limit, they are considered to be more risky. Having a small amount of debt can help boost a person's credit score over time. It can also help keep a person's balances low and payments on time.

How to Pay Off Credit Card Debt

Credit card debt can get out of control quickly and negatively affect a person's credit score. If you read corporate PR publications like Forbes, watch any business news, or listen to quacks like Dave Ramsey then they will have you spinning in credit card debt for the greater part of your life fooling you into thinking the debt can be paid off by simply “tightening your belt.” While this approach may work for dual income families that make $200,000 a year, this is not a realistic approach for consumers and families making near median income levels in Florida. Lets look at the options they want you to believe.

Pay Off Credit Card Balances

This option works for those that make a lot of money and spend a little too much. If you just cut spending for a few months then paying down credit card balances is easy. What if you need your credit card to make ends meet and not to shop at Nordstroms? This option is joke for most consumers and simply not possible. Maintaining the status quo may be realistic, but a lifetime of debt isn't fun.

Apply for a Personal Loan

Any person, adviser, or publication that recommends this doesn't have any real-world experience in debt matters and is probably a total fraud. Run from these people as fast as you can. I hear this one all the time on financial news networks and this strategy is nothing more than an advertisement for loan sharks. First of all, the people that need the money most have no chance of qualifying for a personal loan. If they do qualify then the interest and terms will be so high that they will get no real relief from their credit cards. Essentially this is robbing Peter to pay Paul.  

Apply for a Balance Transfer

Some credit cards offer 0% promotional APRs for new customers on balance transfers. With too much debt, cardholders can consolidate their debts with a new card. At best, this strategy is a short-term band-aid that will offer little to no relief. For those most in need, they will not qualify for 0% introductory rates on credit cards.

REALITY CHECK 1: Bankruptcy

If you are carrying $10,000 or more worth of credit card debt and make close to the median income in Florida then bankruptcy may be inevitable. A Chapter 7 Bankruptcy will wipe out your debts at minimal costs. Often times, if you know you are heading down this road then there is little to no downside to accumulating more credit card debt to make ends meet while you are slowly moving towards an eventual bankruptcy filing.

REALITY CHECK 2: Debt Settlement

Flori8da Consumer Lawyers has helped countless people settle outstanding debts with credit card companies by negotiating short payoffs. To negotiate a good deal with your credit card company there are few requirements that typically need to be in place. First, you have to be at least 90 days in default for most credit card companies won't consider you. Second, it is best if you can come up with a single lump sum payment as that will get you the greatest discount. Paying off credit card debts in a lump sum at 30-50% is not unheard of. It is important that you do this before they file a lawsuit or the credit card companies will usually not offer discounts, Third, if you have multiple credit cards then this requires a strategy. For instance, if you stop making all credit card payments and save your money for 4-6 months you may have enough to negotiate a short payoff with one card at a time.

Reality Check 3: Debt Consolidation is a Rip Off

Stay away from debt consolidation companies at all costs. If you check out the FTC website you will see that debt consolidation is an industry that is ripe with fraud. If you sign up for one of these companies your best case scenario is that you still pay about 90% of your debt over a 5-10 year window and you will have terrible credit the entire time. The reality is that most people that sign up for debt consolidation make thousands of dollars of monthly payments to these companies who pocket the first 12-15 payments as fees and at that point most consumers drop out and stop paying because they can't afford it. Debt consolidation is a scam.

What About My Credit?

The reality is that if you're in a situation where you are struggling to make ends meet and have too much credit card debt then your credit is already not great. Not using bankruptcy or debt settlement strategies to resolve credit card debts because you want to hold on to your mediocre credit score is the biggest mistake most consumers make.  

Bottom Line

Don't be too quick to listen to “experts” regarding household debt. Most “experts” are corporate media figures that are just giving you strategies to pay more money over longer periods of time. If you have debt issues you should speak with real consumer lawyers. Call Florida Consumer Lawyers today.

About the Author

Sami Thalji

Sami Thalji is a native Floridian, born in Clearwater and raised in St. Petersburg, Florida. Sami graduated from Osceola High School in Seminole, Florida before attending and receiving both his Bachelor of Science and Juris Doctor from the University of Florida in Ga...


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