You Might Not Realize What Happens When You Spend More Than $20,000 on Your Credit Card

Putting this much on your credit card could be costly.

Credit card companies sometimes give out generous credit limits, especially to people with high incomes. And if you have enough credit, there's nothing stopping you from spending a sizable amount on your credit cards.

You may be wondering what would happen if you went big and really took advantage of your credit limit. Or, more likely, if you ran into financial troubles and had to keep relying on your credit card for more and more expenses. To explain why carrying a large balance is so dangerous, let's look at what happens if you spend more than $20,000 on your credit card.

You'll have a hefty minimum payment

Each card issuer has a formula to calculate minimum payment amounts. Not all card issuers calculate minimum payment amounts the same way, but many do it by adding that month's interest charges to 1% of your balance.

Let's say you have a balance of $20,000, and your credit card's APR is 20%, which is near the current average. If your card issuer uses the interest plus 1% calculation method, your minimum payment will be $533.33.

That's quite a bit of money to pay for your credit card bill every month. And that's how much you pay if you're only making minimum payments, which isn't recommended. Paying the minimum on your credit card is a bad idea no matter how much you owe, but it's especially problematic with such a large balance because of what we're about to go over next.

Interest charges will be through the roof

Credit cards typically have very high interest rates, and recent rate hikes have pushed them even higher. The current average credit card APR is just over 20%. That makes carrying a balance expensive, and it gets even more expensive when you spend $10,000 on your credit card, $20,000, or more.

Let's go back to that earlier example, where you have a balance of $20,000 on a card with a 20% APR. For simplicity's sake, we'll say your balance stays about the same for the entire year. At the end of the year, you'll have paid approximately $4,000 in interest.

That's bad enough, but it's worse if you only make minimum payments. If you do that, it will take you 35.6 years to pay off your credit card debt. During that time, you'll pay $32,723 in interest.

The exception to the rule on credit card interest rates is 0% APR credit cards. These offer a 0% APR on purchases for an introductory period. If you know you'll need to spend a lot of money, consider opening one of these credit cards to avoid interest charges.

Your credit score will most likely take a hit

Your credit score is based largely on how you manage your credit cards and loans. Carrying significant credit card balances is considered a high-risk behavior, so it can lower your credit score.

To be specific, credit scoring systems divide your credit card balances by your credit limits. This is known as your credit utilization ratio, and it's better for your credit score to keep this below about 30%. For example, if you have one card with a credit limit of $25,000, you should keep the balance below $7,500. That way, you're not using 30% or more of your credit limit.

On the other hand, if you have a $20,000 balance and a $25,000 credit limit, your credit utilization is 80%. When your credit utilization is that high, it can have a big negative impact on your credit score.

If you plan to spend it all at once, your card issuer may contact you

For most people, ending up with a $20,000-plus credit card balance takes a while. It's normally the result of getting deeper and deeper into debt. But it could also be from one very large purchase.

This may set off your card issuer's fraud protections. If so, the issuer will call, text, or email you to confirm that the transaction is legitimate. It might also block the transaction on the first attempt so it can get your confirmation before allowing such a big purchase to go through. After you verify that you're the one who attempted the purchase, you can try it again, and it should work without issue.

When you have over $20,000 on your credit card, that's usually a financial emergency, unless you can repay it all at once. If not, look into how to pay off large amounts of credit card debt. You'll also likely want to check out balance transfer credit cards that you can use to refinance your debt at a 0% intro APR. It will take time, but a debt payment strategy can help you get on track and start making progress.