While roughly 49% of U.S. cardholders carry a balance month to month, most financial experts agree that paying off your balance in full every month is better for your financial health. With interest rates at 24.84% as of July 2024, it’s even more risky to have large credit card balances.
Here’s why carrying a balance over each month can have a negative impact on your finances:
Interest Adds Up
When you carry a balance on your card from month to month, you’ll be paying in interest. It might seem like a little at first, but interest adds up quickly, ultimately costing you more over time. As you spend more, your debt and interest grow until the chance to pay it off in one month has passed.
Your Credit Score May Be Negatively Impacted
As your interest accrues, so does your debt. This makes it more challenging to pay down, and late or missed payments will impact your credit score. Credit reporting companies also factor in your credit utilization ratio at 30%. This means that if you use more than 30% of your available credit, your credit score will be negatively impacted.
See a Credit Counselor
If you’re making payments on time and trying to pay down your debts with little impact, it might be time to talk to a credit counselor. They can help you create a budget that works for you and enroll you in a debt management plan (DMP). A DMP program allows your credit counselor to negotiate with your lenders to reduce your interest rate and consolidate your loans into one lower monthly payment, allowing you to pay off your loans more efficiently in three to five years.
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