Live: US Credit Card Debt Hits $1.2 Trillion
What’s scary about that number is that while it is large, it will likely grow… very fast.
Credit cards are often discussed with concern because they typically have high interest rates (between 20 and 30%). This is considered a high interest rate, perhaps like your Valentine’s Day crush? Or… maybe next year pal. Next year.
Anywho! For example, let’s assume you have $1000 worth of credit card debt and a 25% interest rate. While in one month your debt will grow by about $20, over the course of a year it will grow by over $250 (because the interest accrues on a daily basis).
Similar to how investments grow, and then they grow at an increasing rate, credit card debt grows through the same mechanic. The debt will compound on itself if you don’t pay it off, so the day by day, month by month it will grow even more.
This can make credit card debt difficult to pay off once you get it, so shoot to pay your statement balance in full each month so that you don’t have to be concerned about interest.
That said, if you are not carrying a balance on your card, it can be an incredible ally (rather than adversary).
For benefits such as…
Free cash-back from your regular spending
A high credit score for cheaper loans and easy approval for apartments
Travel perks, discounts, and other rewards
So read on so you can…
Learn: How to Lower Your Utilization and Maximize Your Rewards
Credit utilization is one of the greatest factors affecting your credit score. It is calculated based on how much of your total credit limit you’re using at a given time (and if you have multiple cards it is calculated on a per card basis as well).
The general rule is to keep your utilization under 30%—so if you have a $1000 credit limit, you spend less than $300 per month. And if you really want to maximize your score, keep utilization below 10% (or $100 in our example).
But here’s the catch: credit utilization is recorded based on your statement balance—not your total spend habits.
So what's your statement balance?
The statement balance is how much you owe on your card on the statement recording date. A day before your payment due date (often about 20 days or so).
The statement recording date comes once a month, but you can pay off your card as many times as you want.
So what does this mean?
Say you have a credit limit of $1000, but OOPSIES! You spent $950 this month on collectable Teletubbies (naughty naughty).
Fret not!
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If you pay down your balance by $850 ahead of your statement recording date and don't spend any more that month, then your utilization will only reflect as 10% based on the $100 you owe on the day it is recorded.
BUT! You still will get all the cash back rewards you would normally get on your card from the $950 dollars you spent.
This means that if you want to spend at your normal rate without blowing up your utilization, you can just pay down your balance ahead of the statement recording date.
End result? You keep spending like normal, but your credit score shines. 🤩
Bonus: Extra Perks
⭐ Better credit score = better interest rates on future loans
⭐ Lower utilization makes you look more “creditworthy”
⭐ This trick can help you qualify for higher credit limits faster
Launch!
Figure out your statement recording date for your credit card.
Next time you are about a week away from your statement recording date, pay down most of your card balance so that your utilization will be low.
If you use Credit Karma or your bank shows you an approximation of your credit score, you’ll probably be able to see the immediate positive impact on your score!
This should not be taken as a means to overspend with your credit card (cool it with the Teletubbies please). But it can be a great way to keep your score high!
A little bit of proactivity can go a long ways with your finances. Don’t let credit cards be a pain, use them to your advantage! ;)
—Ben Brosnahan
