Here's What a $1,000 Credit Card Balance Could Cost You in Interest

You may be surprised how much financial damage even a modest balance can inflict.

Sometimes you have little choice but to rack up a balance on one of your credit cards and pay it off over time. For example, if you get hit with a huge medical bill or home repair and you don't have enough money in emergency savings, swiping your credit card may seem like your next best bet.

But many people rack up credit card debt not because emergencies strike, but because they don't understand the consequences of carrying a balance. They figure they can just charge what they want to buy. They might think, "Well, I really want this new TV. What's the big deal if I pay it off over two or three years?"

The reality? Even a relatively small credit card balance can cost you more than you might think in interest. And that's reason enough to avoid carrying one unless you truly have no choice.

Interest charges can really add up

The amount of interest you pay on a credit card balance depends on the interest rate your card imposes and the length of time you carry that debt. But here's a sampling of what a $1,000 balance would cost you at typical interest rates:

As you can see, in our worst-case scenario, you pay $337.89 in interest -- roughly one-third of your original balance -- if your credit card charges 20% interest and it takes you three years to shed your debt. Keep in mind that credit card interest rates don't top out at 20% -- they can be higher. The numbers above are merely an example to illustrate the problem with carrying a credit card balance.

Also, to be clear, the numbers above assume a fixed interest rate on your credit card balance during your repayment period. Credit card rates are often variable and can fluctuate over time, but these numbers should give you a sense of the financial damage a $1,000 balance can do -- even if that figure may not seem particularly high.

How to avoid credit card debt

The best way to steer clear of a credit card balance? Have a solid emergency fund -- one with enough money for at least three months of essential living expenses.

Beyond that, choose your purchases carefully.

You might try the 24-hour rule -- when you're tempted with an impulse buy, wait 24 hours before completing that purchase. Chances are, during that 24-hour window, you'll realize you don't need the item or can't truly afford it.

Finally, follow a budget. You'll see what you can afford to spend, rather than just guessing and winding up in debt.

No matter how you look at it, credit card debt is bad news. Not only can it cost you a lot of money, but too much debt can lower your credit score. Do everything possible to avoid racking up even a small credit card balance -- your wallet will thank you.