Overcoming Personal and Legal Challenges

Overcoming Personal and Legal Challenges

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How much revolving credit card debt should you have?

If you are like many Americans, using your credit cards for utilities, groceries and other essential expenses has become common. After all, according to reporting from CNBC, the cost of most items has increased by roughly 7% in the last year alone.

Even though there is nothing inherently wrong with reaching for your credit cards to help you pay for higher-priced items, you must be careful not to carry too much revolving debt. How much is too much, though?

What is revolving debt?

Revolving credit card debt is the amount of consumer debt you carry over each month. If you always pay off your credit cards, you probably have zero revolving debt. If you only make minimum payments, however, your revolving credit card debt is likely to increase each month. This is especially true if you have high-interest credit cards.

Do you know your credit utilization ratio?

To gauge whether you may have too much revolving debt, you must first calculate your credit utilization ratio. Your CUR compares the amount of credit you are currently using to the credit you have available. To determine your CUR, simply divide your credit card balances by your credit limit. If your CUR is higher than 30%, you may have too much-revolving credit card debt.

Why should you care?

Having a high CUR may cause your credit score to drop significantly. If you want to qualify for a mortgage or a car loan, a lower credit score may result in higher interest rates or even an outright denial.  Ultimately, if you are trying to lower your revolving credit card debt, it may be advisable to explore your debt-relief options, such as a bankruptcy filing or home refinancing.