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How High Credit Card Balances Can Hurt Your Wallet
Barclays Ring Public Blog

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Are you nervous about checking your credit card statement after the holidays? Let's face it — while the holidays can be full of joy and cheer, it can also be quite expensive. Maybe you wanted to max out your rewards on your credit card or take advantage of having to pay later and racked up a high credit card balance after the holidays. You might think “I'll pay it off later”, but racking up a high balance on your credit card can hurt you more than you think.

Here's how:


High credit utilization

You might think racking up a high balance on your credit card is no big deal, especially if you have a plan to pay off the balance in full. However, having a high balance on your card can actually hurt your credit score (yes, really).


Why? It comes down to your credit utilization, or how much of your available credit you are using. So if you have a $5,000 credit limit and use all $5,000 — or something close to that — your credit utilization is close to 100 percent.


Your credit utilization is one important factor that affects your credit score. Ideally, you want your credit utilization to be fairly low — typically, less than 30 percent of your credit limit. Having a high credit card balance and using a lot of your available credit can be a red flag. It shows that you might be
over reliant on credit, which can be a concern for lenders.


Your credit utilization makes up 30 percent of your credit score. Having a high credit card balance, which results in high credit utilization can result in a drop in your score.



Being in debt
If you don't end up paying your high credit card balances in full, the reality is you'll be in credit card debt and interest will start accruing, which can add up. Being in debt also affects your overall debt-to-income ratio, which could affect you if you're looking to get a mortgage or another loan.


It also means you're saddled with more monthly payments that can take a bite out of your budget and cost you more in interest.



Paying more in interest

During the holidays, it's easy to rack up a high credit card balance. You have gifts to buy and travel to book. Maybe you charged a lot on your credit card and had every intention on paying it off in full when your payment was due — but then realized it was a bit more than you can stomach.


If you only pay the minimum on your high credit card balance, you'll end up getting hit with interest charges. Struggling to pay a high credit card balance and then having to pay additional interest can feel like salt on the wound.


Let's say you owe $3,000 with an interest rate of 15 percent. You pay a minimum of $120 each month. In this scenario, you'll end up paying over $600 in interest. Not only that, but it will take you two and a half years to pay off your balance!


Do you really want to be saddled with all this interest and have it take years to pay off your balance? Probably not. Here's how you can pay down those high credit card balances.



How to pay off high credit card balances

Dealing with high credit card balances after the holiday can be a big wake up call and quickly erode any remaining joy from the holidays. But don't panic. You can create a plan to get out of debt!


The first key step is to pay more than the minimum. Only paying the minimum will be a slow journey out of debt, but if you double down on your payments you can work to pay off your balance. How much should you pay? As much as you can reasonably afford. See where you can cut back so you can put more to debt.


If you're stuck with a high credit card balance and a high interest rate that's making it difficult to get ahead, you might want to consider a balance transfer. Using a balance transfer credit card, you can transfer your balance to a card with a low interest rate — sometimes zero percent.


In this case, you can save money on interest and be able to pay more toward the principal balance. While a balance transfer can be a good option, keep in mind that some low interest rates are only available during a promotional period and there may be balance transfer fees consider. Ultimately, you want to evaluate if it's a good option for you.


Lastly, consider going on a cash diet while paying down your high credit card balance. Putting a hold on using your credit card and opting for cash can help you spend less. When you use cash, you spend only what you have, so you can get your spending in check while you pay down debt.




Bottom line

If you're dealing with high credit card balances after the holidays, you're not alone. While it's easy to get upset or stressed, don't fret! Instead, create a plan to pay off your high credit card balances. Using the tips above, you can create an action plan to ditch debt and not pay for the holidays for the rest of the year to come.







*All content provided in this blog is supplied by Melanie Lockert and is for informational purposes only. Barclaycard takes no position as to the views, and makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.

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