How Much Credit Card Debt Is Too Much?

Updated: December 22, 2023 Author:

Quick answer: Whether your credit card debt is too much will depend on your financial situation. Your credit debt is too much if you cannot make minimum repayments. Start reducing your credit debt if it harms your credit score and affects credit applications.

    What is Credit Card Debt?

    Credit card debt is the money owed for transactions made via your credit card. A credit card has a monthly credit limit – the maximum you can borrow without penalty. 

    Your monthly statement balance will tell you how much credit card debt you have. 

    You can decide whether to pay the debt/balance in full or over time by making lower repayments. If you do not pay in full each month, the following charges may apply:

    • Interest – is charged as a percentage of what you owe.
    • Default penalties – these can be applied for late or insufficient payments or exceeding your credit limit.

    How Much Credit Card Debt Is Too Much?

    Whether your credit card debt is too much will depend on your financial situation. Credit cards often have high-interest rates, and you probably have too much credit card debt if you:

    • Can no longer afford the minimum repayments
    • Your monthly repayments are mainly covering interest charges, not reducing your debt
    • Credit card debts are increasing each month
    • You are nearing your credit card limits each month
    • Your credit card debt is lowering your credit score

    Promotional rates

    Sometimes, credit card providers offer a promotional 0% annual interest rate. Maintaining a high balance on these cards is fine if you can afford the minimum monthly repayments and will be able to settle the final balance.

    Too little credit card debt

    A small amount of manageable credit card debt can be beneficial for credit score purposes. Paying off your credit card debt in full each month is the best way to demonstrate responsible payment behaviour. For more information, see the guide to using a credit card to improve your credit score.

    Impact of Credit Card Debt

    Too much credit card debt is likely to result in:

    Lower Credit Score

    Credit card debt can negatively impact your credit score. Your credit card provider reports your outstanding balances and payment activity to credit reference agencies. 

    High Credit Utilisation

    Credit Utilisation rate, ratio, or percentage is your credit card balance divided by your total credit limits. If you have two credit cards with the following balances and limits, the credit utilisation is:

    Credit CardBalanceCredit LimitCredit Utilisation
    Credit Card A£175£50035%
    Credit Card B£200£25085%
    Combined£375£75050%

    Lower combined and individual credit utilisation can improve your credit score. In the above example, the credit utilisation of Credit Card B can be lowered by:

    • Reducing the balance: pay the card in full and reduce future spending to avoid a high balance
    • Increase the credit limit: your card provider may offer a higher credit limit. For example, if the credit limit increased to £400, the credit utilisation for a £200 balance would be 50%.

    Keeping your credit utilisation below 25% will positively impact your credit score.

    High Debt-to-Income (DTI) Ratio

    DTI compares your total debt to your total earnings. For example, if you earn £2,500 per month and your debt repayments are £1,000, your debt-to-income ratio is 40%. A high DTI ratio will make it difficult to access more credit. 

    Accrued Interest

    Credit cards have high interest rates, and if you cannot clear your credit card debt each month, this can lead to accrued interest.

    Negative Health

    The debt burden may have negative consequences for your mental and physical health.

    How can I address Credit Card Debt?

    The following steps can help you regain control of your credit card debt.

    Consider your situation 

    Credit cards can be helpful in emergencies: your credit card debt may be high because of unemployment or an unexpected expense. However, if you are spending more than you earn and this leads to increasing credit card debt, you need to curtail this behaviour. 

    Understand what you owe

    Start by totalling your total credit card debt from your statements. For each credit card, note what you owe, what you are repaying each month, and the interest rate for each card.

    Start paying off credit card balances

    If you have multiple credit cards, start paying off the most expensive debt first: the one with the highest interest rate. 

    Only making minimum repayments will keep you in credit card debt for longer but will avoid penalty fees. Making manageable fixed payments above the minimum will help you clear your debt faster and at a lower cost. For example, with a credit card balance of £500 and a repayment of £15 each month, it will take 56 months to repay your credit card. At an annual interest rate of 24%, the total interest due is £332.24. Increasing the repayment to £20 monthly would reduce the total interest due to £200.06.

    Apply for a Consolidation Loan

    A consolidation loan can help you switch your high interest credit card debt to a lower interest rate. You would repay the loan over a fixed term.

    Apply for a Balance Transfer

    Similarly to a consolidation loan, the idea is to shift the credit card debt to a different credit card with a lower interest rate.

    What is the best way to negotiate with credit card providers?

    Ultimately, your credit card provider wants you to settle your debt. Credit card providers can help your situation via a payment holiday, a payment plan, or even changing payment due dates. Do not hesitate to contact your credit card provider if you are struggling financially.

    Citizens Advice also has guidance if you are struggling to pay your credit card.

    What are the benefits of reducing Credit Card Debt?

    Reducing your credit card debt will improve your credit score and demonstrate to future lenders that you are a responsible borrower. It will help with future applications for credit, e.g. a phone contract, credit card, loan, or mortgage.

    Summary

    Ultimately, paying off your credit card debt will take discipline. A credit score monitoring app may help your motivation by showing the positive impact on your credit score. There are many free credit monitoring apps, and you can read more about them here