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Excessive credit card debt is determined by individuals, credit reporting agencies and lenders in several different ways. Given that both the personal borrower and these agencies define what constitutes "excessive," definitions will vary and are best described as a variety of possible interpretations.
There is a school of thought that all debt is excessive and that people should pay as they go for each expense. Some financial advisers in this school still recommend carrying a credit card, but the card should be paid off monthly. Leaving a balance in any amount at the end of the month is thought of as excess. This is a useful definition for people willing to forgo extra spending or who can afford all purchases, but may not be realistic for all people.
Most financial experts will agree that excessive credit card debt occurs at any time a person is unable to pay off at least some of the real balance of the card. When borrowers can only pay interest amounts or minimum payments, debt may increase monthly or it may remain stagnant. In other words, it’s important not to accrue debt that exceeds ability to pay it off. People who find themselves in this situation may need to work with a credit counselor to determine if they can negotiate lower interest rates or make larger payments to reduce the balance.
For credit card reporting agencies and lenders, one factor evaluated is debt to income ratio. When people have a high debt and lower income, lenders are less likely to offer them prime rates or seek them as customers. Excessive credit card debt, in combination with all other debts, would be any amount that requires the borrower to pay a large portion of their income to minimum payments. Maintaining a high credit card balance can easily make debt to income ratio too high, which might affect creditworthiness.
Another way excessive credit card debt is analyzed, especially by credit reporting agencies, is by the amount of credit that is being used. Financial experts differ on specific percentage, but most believe anything in excess of 50% of available credit being used is too high and may negatively affect a credit report. Some experts suggest that no more than 30% of all credit available should be used at any one time. This does not always refer to a dollar amount — a borrower with a $200 US Dollar (USD) credit limit could be using more than 50% of available credit by owing $101 USD.
Excessive credit card debt may refer to debt that is difficult to pay, isn’t being paid down, or is increasing. Anytime even minimum payments are hard to make, debt is excessive. This matter can be further defined as anything creating a high debt to income ratio, or debt over 50% of available credit.
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