Many consumers handle their finances under the assumption that carrying a balance from month-to-month on their credit card(s) will give their credit score a boost. This common misconception will not only keep the consumer with a credit card balance, but it also may not do anything beneficial for their credit score.
Approximately 46 percent of all Americans believe that leaving a small balance on their credit cards is better for their credit score than paying the balance off in full every month, according to a recent study by NerdWallet.
Unfortunately, all that happens when someone maintains a balance on his or her credit card is interest will be charged on the person’s outstanding balance, even if the amount is small. With revolving debt, such as credit cards, interest is not always calculated based on the balance rolled over to the next statement period but is calculated based on the cardholder’s daily balance.
In fact, carrying a credit card balance could have the opposite effect and could actually hurt the person’s credit score. According to many financial experts, consumers benefit more from paying off as much as they can when it comes to credit card debt, including paying the balance off in full every month.
The higher the balance a person carries, the worse the impact will be on his or her credit score. Most credit experts advise borrowers to keep their revolving debt below 30 percent of their available credit. By doing this, consumers will be able to mitigate the effect that high credit card balances will have on their credit scores.
It is estimated that approximately half of all credit card holders keep a balance on their credit cards from month to month, according to a recent report by Bankrate. The interest rates on these cards tend to be on the higher side, which makes paying down the debt that much harder. An average credit card interest rate is just over 18 percent.
Interest rates are only expected to rise, unfortunately. The Federal Reserve has continued to raise interest rates to combat inflation, and as a result, interest rates are expected to hit 20 percent by the start of 2023.
According to a study by WalletHub, credit card users will end up paying $20.9 billion more in 2022 due to interest rates being as high as they currently are. As interest rates continue to rise, this number is only expected to get bigger.
As bankruptcy attorneys, we see credit card debt as one of the most common problems facing those with serious financial challenges. It is not surprising with the high interest rates, unreasonable fees, harassing debt collection calls, penalties and never-ending minimum payments that do not even make a dent in your actual debt.
Filing for bankruptcy is a viable option for those struggling with insurmountable credit card debt. Chapter 7 is the fastest form of consumer bankruptcy and forgives most unsecured debts like credit card debt, medical bills and personal loans. There are certain qualifications a consumer must meet in regard to income, assets and expenses to file for Chapter 7 bankruptcy, which is determined by the bankruptcy means test.
Please click here to read more.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.