Having zero credit card debt is far better than having no credit card debt at all. However, having a small, consistent amount may be, surprisingly, good for your credit score. You see, lenders are looking for responsible credit card usage. If they can see you having consistent, timely payments, you are less risky to lend to. But how can you tell when your credit card debt might benefit from credit card counseling? Here are some of the basics.
You Have High Balances on Your Credit Cards
To determine if you may need credit card counseling, check out our 43/30/10 guidelines:
High Debt-to-Income
The ratio of your monthly debt payments to your monthly income is known as your debt-to-income level (DTI). When credit card payments consume a sizable chunk of your pay, other areas of your budget are put under stress. Since lenders don’t want consumers to borrow more than they can afford to repay, lenders utilize DTI to measure this risk. To find your DTI: Add up all your monthly debt payments and divide them by your gross monthly income. Good DTI is at or below 43%.
High Credit Utilization
Your credit utilization ratio is how high your balances are compared to how much credit is still available for you to use. Although there isn’t a universally accepted definition of what constitutes an excessive credit utilization ratio, many financial experts agree that you shouldn’t go beyond 30%. This can be measured per card and overall.
High Credit Card Debt Ratio
When credit card payments consume a large chunk of your paycheck, it becomes tough to pay all your other monthly bills. Generally speaking, you should never let the minimum credit card payments surpass 10% of your net income. To determine your credit card debt ratio use this formula: Credit card monthly payments / Monthly take home pay.
You’re Only Paying the Bare Minimum
Paying the minimum payment could be problematic. When you only make the minimum payment each month, it can take a lifetime to pay off credit card debt. If you find yourself in this situation, try to cut other areas so you can pay more than the minimum credit card debt payment.
You’re Paying Credit Cards with Other Credit Cards
You may have too much debt if you find yourself attempting to pay off one credit card with another. The majority of credit card companies will not let you do this directly, although it is not impossible. Nevertheless, it may be an indication that you need a credit counselor’s help.
Need Credit Card Counseling? DebtHelper is Here for You!
Sometimes your finances are simply out of your control. Every cardholder should be aware of life! It has its way of helping you increase credit card debts even if you are watching closely. If you need assistance, we at DebtHelper have practical solutions to solve your credit card debts and be financially healthy. The right guidance is what you need, contact us today!
