5 Signs Credit Cards Are Ruining Your Financial Health

In 2023, credit card debt nationwide hit a staggering $1.115 trillion, and the average balance per American sat at $6,501. For some folks, that amount may be manageable, but for others, credit card debt represents a dark hole that can be challenging to climb out of. If you're carrying credit card debt but aren't quite sure if what you're experiencing is "normal," take a look at the following five signs that credit card debt may be getting in the way of your financial freedom.

1. You're only able to make the minimum payment

Imagine that you carry a balance of $500 on a credit card with an interest rate of 24% (the current average percentage rate, or APR). If you make a minimum payment of $15 each month, paying the balance in total will take four years and eight months. However, you will have spent $332 on interest along the way. If you increase your monthly payment to $25, the debt would be paid off in two years and two months, and you would pay $145 in interest.

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

2. You've been denied credit

If you've ever applied for credit and been denied, it may be due to your credit utilization. Credit utilization refers to how much you owe compared to how much credit you can access. Let's say you have a credit card with a $1,000 spending limit. If you owe $900 on the card, you only have access to $100. However, if you only owe $100, you can access $900. Generally, the more credit you can access, the better lenders feel about trusting you with a loan.

What if your car breaks down for the last time and you need a new one, or the water heater stops working mid-winter? The less you've already borrowed, the higher your credit score is likely to be. Creditors don't look at that and think, "Oh, good. This loan applicant doesn't need our money." Instead, they think, "Wow, look how carefully this loan applicant handles debt."

3. You're unable to save money

An emergency savings account minimizes the odds that you'll be forced to cover emergencies with a credit card. If you find saving money impossible due to credit card payments, your credit cards are doing you more harm than good.

Think about the interest you pay toward credit card debt each month, and imagine how much easier it would be to build an emergency fund if those dollars were available to you.

4. You're taking cash advances

If you're taking cash advances from your credit card, it's crucial to understand how much higher the interest rate will be on those funds. For example, as of June 1, 2024, a First Interstate Bank credit card carried an APR of 19.50% for purchases and balance transfers. However, the APR on cash advances was 29.50%.

If difficult-to-pay credit cards represent a hole, a cash advance only makes that hole deeper. If you find yourself taking cash advances, it's time to devise a debt payoff plan for how you'll climb out.

5. You use one credit card to pay off another

If you find yourself robbing Peter to pay Paul -- or, in this case, taking a cash advance on one credit card to pay another -- it's a clear sign that it's time to take control of your credit situation. As mentioned, the APR on a cash advance is higher than on a purchase or balance transfer. When you cannot make a credit card payment and must cover it with a cash advance from another card, your financial health could be at stake.

There's hope

It's easy to believe your financial situation is worse than anyone else's. It's easy to think there's no way out. But nothing could be further from the truth. Getting out of credit card debt is not something you'll likely accomplish overnight, but millions of people have done it, and you can, too.

Here are four ideas to get you started:

• Stop using your credit cards. Credit cards are great as long as you're not paying interest. Until you are in a position to pay your credit card bills in full each month, stick with your debit card and cash as much as possible.
• Pay a little more each month. You owe less interest every time you pay extra toward your credit card.
• Make a balance transfer. If your credit score remains relatively strong, you may qualify for a credit card with a 0% intro rate. Let's say you're approved for a card with a 0% intro APR for 18 months. And, for the sake of this scenario, imagine that you transfer $1,800 in high-interest debt. That gives you 18 months to pay the $1,800 off without paying a penny in interest. Pay the debt off before the introductory period expires so you're not stuck paying the standard APR.
• Look into a debt consolidation loan. A debt consolidation loan works like this: You take out a single loan, preferably at a lower interest rate than you currently pay on credit cards. Instead of payments to different lenders, a consolidation loan means you make one fixed-rate payment each month. As long as you make all payments in full and on time, you should be able to pay the loan off faster than credit cards, and more importantly, you should save money.

Finally, if you need help getting started, a nonprofit organization like the National Foundation for Credit Counseling (NFCC) can help. With NFCC, you connect with a certified credit counselor for a private consultation. Your counselor will work with you to learn more about your budget and financial goals. Once they have the information, your counselor will create a personalized financial action plan to help you scrap your credit card debt and take control of your finances.

Figuring out that credit cards stand between you and your financial health is a positive. After all, you have to know there's a problem before working on a solution. And no matter how daunting it feels, a solution is within reach.