Credit card balances are at an all-time high, and a bad habit could make your bill even more expensive – DIGIWIZ CENTRAL

Credit card balances are at an all-time high, and a bad habit could make your bill even more expensive

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According to the Federal Reserve Bank of New York, credit card balances are at their highest level ever.If you can, you should almost always pay your credit card in full.Carrying a balance from month to month can negatively impact your credit and lead to debt. 

According to the Federal Reserve Bank of New York, credit card debt hit a record $1.03 trillion in the second quarter of 2023. More people are carrying credit card balances from month to month and taking longer to pay them off.

Now that interest rates have risen, carrying a balance just keeps getting more expensive. Interest for most credit cards accumulates daily and a high interest rate adds up to expensive debt.

I saw this with my own credit cards. When I used to carry a balance on my cards, I would see how the interest impacted my balance and that I had to pay much more to get the balance down. This is a recipe for credit card debt. It becomes a cycle of interest accruing on a balance and the payment you make not really reducing the total debt because of that interest.

For that reason alone, the best thing to do get out of the habit of carrying a balance, and pay off your entire bill monthly.

There will be situations in which this isn’t possible; we’re all doing the best we can with our money. But if you have a choice, paying your balance in full every month can save you money, improve your credit, and keep you out of debt.

How carrying a credit card balance can impact your credit

Your credit card balance also affects your credit score. I have found that everyone knows that payment history is the No. 1 factor in determining your credit score … but your utilization is a close second.

Your credit utilization ratio represents the amount of revolving credit you are using, divided by the total credit available to you. Lenders look at your credit utilization ratio to help determine how well you are managing your credit and your debt. For example, if your credit card limit is $2,000 and you are carrying a balance of $1,850, you have a high utilization ratio (you’re using a lot of your available credit). To lenders, it looks like you’re dependent on credit and having trouble paying that debt down.

However, in the same scenario, if you have a $2,000 credit card limit and pay the card off every month or carry a low balance of $600 — 30% of the limit — then you look like you’re using credit responsibly.

To avoid high credit utilization from negatively impacting your credit, you want to keep your utilization under 30%. The lower the utilization, the better it is for your credit, which is why striving to pay your balance off in full every month is a smart move.

Paying your balance off keeps you out of debt

Paying your credit card off in full and on time is the best credit card strategy. This may not be something that happens overnight for you especially when it comes to paying the card off in full every month. For me to make this happen, I had to make my credit card payments a priority in my budget.

When I use my credit card, I don’t charge more than I know I can immediately pay off. This keeps me out of debt. Carrying a balance only leads to high interest and continuous debt.

Remember that a credit card is a part of your financial plan. It should not be a source of debt or a tool you become dependent on. It may take time to build the habit of paying your credit card off in full each month, but it is the best way to positively impact your credit and stay out of debt.

Read the original article on Business Insider
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