Americans turn to their credit cards to meet a wide variety of expenses. With the inflation rate at 3.2%  as of February 2024, most purchases have become much more expensive.

The average credit card debt per cardholder in the U.S. was $6,501 in Q3 2023, rising by 10% from the previous year in 2022. If you find yourself in a similar position, you may be wondering, “How much credit card debt is too much?”

If you think that you have too much credit card debt, paying attention to a few key indicators can help you determine where you stand. Actions like maxing out your cards and carrying a high credit utilization ratio may indicate you have too much debt.

Maintaining good credit habits can help you avoid getting into too much debt. Start by taking stock of your debt and consider how you’ll pay it off in a cost-effective way, such as with a balance transfer credit card, a debt consolidation loan at a lower interest rate, or by enrolling in a debt settlement program.

How Much Credit Card Debt Is Too Much for My Income?

Regardless of how much you earn, you may be wondering, “How much credit card debt is too much for my income?” Looking at your monthly income can help you get personalized insight into your debt situation. Ideally, you don’t want your minimum credit card payments to be over 10% of your net income after deductions and taxes (i.e., 10% of your “take home” pay).

Low-Income Earners

If credit card payments are taking up a large portion of your income, it may be challenging to afford all the other necessities you need. Using the 10% rule listed above, if you are earning a net income of $1,000 to $2,000 each month, the highest balance you should carry on your credit card, month-to-month, should result in a minimum payment no larger than $100 to $200 per month.

Middle-Income Earners

Using the same ratio, if your monthly net income is $3,000 to $5,000, the maximum balance you should be carrying on your credit cards is one that limits the monthly payment you should be required to pay each month to $300 to $500. A total of 10% of your take-home pay is typically the “safe zone” to keep your overall DTI ratio below 36%.

High-Income Earners

Even if you are earning a high income, it’s important to keep your credit card debt in check. If your net monthly income is $7,500 to $10,000, your credit card payments each month should not exceed $750 to $1,000. If your debt continues to increase, it becomes more challenging to stick to your budget because it impacts your cash flow. You may face overdrafts, miss bill payments, and put off important things like doctor’s appointments.

How Much Credit Card Debt Is Too Much for a Family?

The word “debt” has a negative connotation, as excess debt often leads to financial stress and other problems. But how much credit card debt is too much for a family? Generally, reasonable debt for families depends on many factors, such as your job stability, career prospects, financial obligations, saving and spending habits, and the stage of life your family is in.

Another important factor to consider here is the interest rate you're paying. High-interest debts such as credit cards can lead to spiraling levels of outstanding balances.

Single-Income Families

For single-income families, it is important to have conservative levels of credit card debt, even with job stability. One way to determine if you have too much debt is by using the 28/36 rule

Based on this rule, you should spend no more than 28% of your gross income on housing and no more than 36% of your gross income on housing plus total monthly debt payments.

For single-income families, this rule can be applied to net income for a conservative estimate. It is safer to calculate your spending and borrowing habits on take-home pay because this is what you’ll have disposable after taking deductions for retirement account contributions, health insurance benefits, and taxes. For example, if your after-tax income each month is $3,125, you’ll need to keep all your housing and expenses to $1,125 or lower each month to avoid going into debt.

Dual-Income Families

Dual-income families typically have more disposable income and financial stability. Use the 28/36 rule as intended, based on gross monthly income for the household, to determine how much credit card debt is too much for your family.

For example, if your total gross household income is $8,500 each month, you should aim to keep your housing and debt expenses to $3,060 or lower each month ($8,500 x 36% = $3,060).

How Much Credit Card Debt Is Too Much for My Credit Score?

The amount of credit card debt you have will also impact your credit history and overall financial health. Here are a few ways you can determine if you're in a good spot financially:

Credit Utilization Ratio

When you use up a large percentage of your available credit, it indicates that you have (or previously had) a significant financial need to use debt to make ends meet every month. Your credit utilization ratio can lower your credit score and, in turn, deter lenders because they now see you as a larger-than-normal risk. Many credit card companies consider a credit utilization rate of over 30% to be “high” when you apply for new credit or a new card.  This is also the point at which this utilization rate begins to negatively affect your credit score.

If you use over 30% of your available credit but pay it off each month in full before it's reported to credit bureaus, you may still be in good shape. However, having a high monthly credit utilization ratio on a consistent basis, month to month, indicates that you have too much debt. If you want to improve your credit score, your goal should be to bring down this ratio by paying off your debt as soon as possible or in full each month, if you can.

Payment History

Your payment history also has an impact on your credit report. If you find yourself trying to pay off one credit card debt with another, have late payments, or have multiple missed payments, it is likely that you may have more debt than you should.

Not having enough money to make the repayment each month is a clear sign that you may need to get your spending under control. This is a good time to consider how you can effectively correct this behavior through debt relief solutions like credit counseling and debt management. Look into debt repayment strategies like debt snowball and debt avalanche to clear off your credit card accounts once and for all.

Even if you're making minimum monthly payments but not much else, it could be a problem. Making minimum payments won't allow you to lower your debt load in a timely fashion because minimum payments only cover the credit card interest charges and fees and maybe a tiny bit (1%-2%) of your balance. Soon, your debt may become too much to handle when you follow this course of making minimum payments.

If you find yourself in a situation like this, you may want to consider debt settlement or even bankruptcy. If your situation is not so dire, you may still benefit from getting in touch with a credit counseling agency or a personal finance expert to work out a debt repayment plan. Alternatively, you can also negotiate with your credit card issuer for a more favorable repayment plan.

When Is Your Credit Card Debt Too Much?

Several factors play a role in helping you determine how much credit card debt is too much for your situation. A clear sign is having high balances on multiple credit cards. Consider other factors such as your income, the limits of your credit cards, and if you have missed credit card payments recently. Read below to learn more about these factors:

Debt-to-Income Ratio

The debt-to-income ratio (DTI) is the debt you owe in comparison to your income. This number does not appear on credit reports because credit reporting bureaus have no reason (and are not allowed) to keep track of your income. 

For most people, personal income can and does fluctuate quite often, and it would be almost impossible to keep accurate income information updated monthly for the 200+ million Americans who are over the age of 18 and have a personal credit report on file with the three major credit reporting bureaus. 

Therefore, your debt-to-income ratio (DTI) does not directly impact your credit score. Instead, it plays a crucial role when you go to apply for new credit and in your lender’s management of your existing revolving lines of credit. A high DTI usually indicates that you may have too much debt and that you could have trouble repaying, now or in the near future.

Example: Calculating your DTI ratio is easy. Let’s say you have a monthly income of $2,000, and your total amount of debt-related payments each month is $1,200. Divide $1,200 by $2,000 and then multiply that by 100. In this example, your DTI ratio is 60%. Ideally, your DTI ratio should be lower than 36%.

Credit Utilization

The credit utilization ratio refers to the amount of money you owe on your revolving lines of credit compared to the total credit you have available to you to use. Carrying high credit card balances or maxing out cards is a sign of having too much debt to manage. This indicates to potential lenders that you might be experiencing financial stress. One prime indicator of this is maintaining a high credit utilization ratio.

Other Financial Obligations

When determining how much credit card debt is too much for yourself or your family, it's also important to consider your other financial obligations. If you want to see how your debt fits into the larger picture, you should calculate how much cash you have left over each month. 

Subtract your debt payments and all expenses, such as mortgage payments, student loans, auto loan payments, groceries, insurance, and utilities, from your net monthly income. Ideally, you should have at least a few hundred ($400-$600) dollars remaining each month to save for your goals or to put toward an emergency fund.

Pay Off Your Credit Card Debt

There is no magic number for how much credit card debt is too much. As a credit card holder, you should be aware of your spending habits and balances if you want to avoid the cycle of debt.

If your credit utilization ratio is more than 30%, or if you're not able to pay much more than the minimum balance, your debt may be too unmanageable. Depending on the amount of debt you have, you can consider taking out personal loans to consolidate your high-interest, variable-rate credit card bills into a lower APR, fixed-rate loan with a fixed term that will commit you to pay off your debt within a set period of time.

After trying to get your balances under control, if you think you are not making headway in paying off your debts, consider making a strict budget and creating a debt payoff plan.

TurboDebt can help you jump-start your plan through debt relief services like debt settlement. Our experts can help you find the right debt relief option based on your financial situation. Connect with us today for a free consultation. Check out our reviews to see how our debt relief services have helped thousands of clients!