5 Signs Credit Cards Are Ruining Your Financial Health


In 2023, the nation's credit card debt reached a staggering $1.115 trillion, with a per capita credit card balance of $6,501. For some, that amount may be manageable, but for others, credit card debt represents a black hole that's difficult to climb out of. If you're saddled with credit card debt but aren't quite sure if what you're experiencing is “normal,” check out these five signs that credit card debt may be holding you back from achieving financial freedom.

1. You can only make the minimum payment

Imagine you have a credit card balance of $500 and an interest rate of 24% (current average percentage rate, APR). If your minimum monthly payment is $15, it would take a total of four years and eight months to pay off the balance. However, you will spend $332 in interest in the process. If you increase your monthly payment to $25, the debt will be paid off in two years and two months, and you will pay $145 in interest.

If the most you can come up with is the minimum monthly payment, you'll quickly find yourself unable to move forward financially.

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2. Your credit has been denied

If you've ever applied for credit and been denied, it may have been due to your credit usage. Credit utilization ratio is the amount you owe compared to the amount of credit you have available. Let's say you have a credit card with a spending limit of $1,000. If you owe $900 on the card, you can only access $100. However, if you only owe $100, you can get $900. Generally speaking, the more credit you have access to, the more trust the lender will have in you to provide the loan.

What if your car breaks down for the last time and you need a new one, or your water heater stops working in the middle of winter? The less money you borrow, the higher your credit score is likely to be. Creditors won't see this and think, “Oh, great. This loan applicant doesn't need our money.” Instead, they'll think, “Wow, look how carefully this loan applicant handles his debt.” ”

3. You can’t save money

An emergency savings account can minimize the likelihood that you'll be forced to use a credit card for emergencies. If you find it impossible to save money by paying with a credit card, your credit card may be doing more harm than good.

Think about the interest you pay each month on your credit card debt and imagine how much easier it would be to build an emergency fund if you had that money.

4. You get a cash advance

If you get a cash advance from a credit card, it's crucial to know how much higher the interest rate will be on those funds. For example, the First Interstate Bank Credit Card has an APR of 19.50% on purchases and balance transfers as of June 1, 2024. However, the annual interest rate on cash advances is 29.50%.

If difficulty paying on your credit card is a vulnerability, a cash advance will only make that vulnerability deeper. If you find yourself in need of a cash advance, it's time to create a debt repayment plan to help you out.

5. You use one credit card to pay off another credit card

If you find yourself robbing Peter to pay Paul—or in this case, using one credit card cash advance to pay for another—that's a clear sign that it's time to get your credit status. As mentioned before, the APR on a cash advance is higher than the APR on a purchase or balance transfer. When you can't pay with a credit card and must pay with a cash advance from another card, your financial health may be at risk.

There is still hope

It’s easy to believe that your financial situation is worse than others. It’s easy to think there’s no way out. but it is not the truth. Getting out of credit card debt doesn't happen overnight, but millions of people have done it, and you can too.

Here are four ideas to get you started:

  • Stop using credit cards. Credit cards are great as long as you don't pay interest. Until you can pay your credit card bill in full every month, stick with debit cards and cash as much as possible.
  • Pay a little more each month. Every time you pay extra to your credit card, the interest you owe decreases.
  • Make a balance transfer. If your credit score is still relatively high, you may qualify for a credit card with a 0% introductory rate. Let's say you get approved for a card with a 0% initial APR for 18 months. And, in this case, let's say you transfer $1,800 of high-interest debt. This gives you 18 months to pay off the $1,800 without paying a penny in interest. Pay off the debt before the introductory period is up so you don't have to pay the standard APR.
  • Research debt consolidation loans. Here's how a debt consolidation loan works: You get a loan, preferably at a lower interest rate than you're currently paying on your credit card. Consolidating a loan means you pay one fixed-rate monthly payment instead of paying different lenders. As long as you make your payments in full and on time, you should be able to pay off your loan faster than with a credit card, and more importantly, you should save money.

Finally, if you need help getting started, nonprofits like the National Foundation for Credit Counseling (NFCC) can help. Through the NFCC, you can contact a certified credit counselor for private counseling. Your advisor will work with you to learn more about your budget and financial goals. Once they have the information, your advisor will develop a personalized financial action plan to help you eliminate credit card debt and take control of your finances.

It's a positive thing to figure out what a credit card is standing between you and your financial health. After all, you have to know there is a problem before you can seek a solution. No matter how daunting it may feel, the solution is within reach.

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