If you carry some balances on your credit card that are eating into your pocket every month with interest charges, then you aren’t alone!
A recent study by Clever, a Real estate data firm, almost half -47 percent- of people who use credit card said they were carrying balances. An entire 56 percent of those cardholders have been in debt for a year while another ¾ (72 percent) of balance-carrying card users had accumulated $1,000 in pending credit card debt.
The research also revealed that a large number of these balance holders are not positive they’ll clear their debts soon. According to the figures, only 30% of US citizens with credit card debt are optimistic they’ll settle their debts this year.
In every 5 Americans, one feels it may take up to three years settle their card balances. 7 percent think it will take more than five years to pay off their balances. Meanwhile, another 8% say they have no idea when they’ll settle the debts, if at all they will.
What Carrying A Balance Means
To cardholders, carrying a balance can mean a lot of expenses. Credit card annual percentage rates (APR) stand at 17.7 percent, that’s a 0.5 percentage point uptick over the past six months. That is to say, people with bad credit are paying APRs over 25%.
Do the math right, and you find that accumulating a $1,000 balance per year at 17.7% APR will cost you $100 in total interest!
So, where are Americans missing the mark? A 2018 study by CreditCards.com found that 22% of cardholders think accumulating balances improve credit score. Regrettably, that is not true. You must not carry balances, more so, if the interest rate is high, in the name of establishing credit.
Your credit accounts must not be in use to keep up a desirable credit score. But you deny lenders a chance to asses your creditworthiness if you aren’t using your card at all. So, the smartest way to build a higher score is to pay off all your payments on time, per month, and in full.
Why Customers Carry Balances
Sometimes, circumstances push cardholders to accumulate debts. Other times, card users are spending more than they clear off per month. More than half of the subjects mentioned purchasing groceries as one of the reasons they carry credit card debt. Shopping online and in-store followed closely at 48% and 43% n that order. An entire 44 percent said eating out as part of their debt contributors.
Wrapping Up
Cardholders must now take care of their spending habits and stop assuming that carrying balances will build their scores. Also, they need to be proactive in ensuring timely payments and avoid things that could lead to accumulating balances.
Author Bio: Electronic payments expert Blair Thomas is the co-founder of high risk payment processing company eMerchantBroker. He’s just as passionate about getting a merchant account with bad credit as he is with traveling and spending time with his dog Cooper.