How much is “too much?”
This is a perennial question in life as it is in debt. I suppose if you have some rich Uncle about to kick the bucket, and devote his entire estate to you…You can be as in debt as you want to.
How much is “too much?”
This is a perennial question in life as it is in debt. I suppose if you have some rich Uncle about to kick the bucket, and devote his entire estate to you…You can be as in debt as you want to.
But for most of us, we need to learn good habits of debt management from day one. That way we can know for a fact what is “too much” for us.
Philosophies of debt:
All of our financial predicaments are defined by the way we view life and money. Some people are savers, others are spenders. Some feel overly entitled, others are stuck in a poverty mentality. Here are some typical approaches towards debt.
DEBT IS DEATH: The debt is death concept is often adopted by immigrant and first-generation populations within the US, where being in debt is considered anathema. These people tend to be intense savers, and don’t even bother using credit cards.
This debt fundamentalism, as we can call it, has pros and cons. The pros are that you are never in debt. But a major con, is that it is impossible to make your money work for you in this way. First of all without ever going into debt, you cannot have a decent credit score. Simply because the bank will considered your file to be too thin. Without credit, you can’t get a house, a good car, or many of the other luxuries that are important to us as a culture.
DEBT’S OKAY BUT PAST DUE BALANCES ARE NOT: This is actually pretty smart, the people that pay off their credit cards each month, especially those that take out rewards card Like Chas Sapphire or Amex (Costco) usually cash in over time. Some of these cards have seven percent returns. How great is that? This is usually considered the most responsible way to pay for things with credit, and of course the best part is there is no interest involved.
DON’T BOTHER ME, I’M SHOPPING: Then there is the third category of people. These individuals seem to not care about interest rates, and really don’t care about any financial future besides the next few weeks- living paycheck to paycheck, and racking up debt. Obviously this is not a sustainable way to plan for your financial future. Your cards are maxed, your accounts are tapped- and they blame everyone but themselves. Of course there is help for this category, but it can be the most challenging way to manage your financials.
Whatever your category is, know who you are– and do your best!
3. Any Balance Over 30% of Available Credit is Excessive (i.e. Just Use Credit a Little)
When you carry a balance on your credit card that is in excess of 30% of your credit limit (i.e. line of credit), then you run the risk of negatively affecting your credit score. The bureaus see that as a sign that you are relying too much on your debt. With this in mind, some credit card users don’t mind the occasional balance. But they know about the 30% rule, so they keep the balances low.To this person, any credit card debt above 30% of the credit limit is excessive.
4. Any Balance at or Exceeding the Line of Credit is Excessive (i.e. Use the Heck Out of Credit)
Some people simply don’t know, or don’t care about the high interest that comes along with credit card debt. They constantly keep their credit cards maxed out, but don’t breach their limits. They may even pay on time and never incur a fee. But they pay big amounts in interest payments. They see this as the cost of the convenience of credit. To this person, any credit card debt above the total credit limit is excessive.
For the record, I think #1 and #2 above are the only way to go. And if you aren’t there, you need to be working yourself in that direction. However, I realize there are times in your financial life where you find yourself settling for the #3 and #4 approaches. I’ve been there myself.
Getting Rid of Your Excessive Credit Card Debt
If you’ve come to this post and you are trying to eliminate your credit card debt, then here’s a 6 step plan for you:
Do whatever it takes to stop using the credit cards
Write down your current credit card debts
Prioritize them based on balance or interest rate
Start using every extra dollar in your budget and pay the first card off
Repeat that last step until all your cards are paid off
Enjoy being in control of your credit card debt
Have you ever had excessive credit card debt? How do you define excessive?
Photo by Andres Rueda
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