A $1,000 balance isn't ideal -- but it's also not a deal-breaker.
As a general rule, it's a good idea to steer clear of credit card debt, whether it's a $20 balance or a $20,000 balance. Of course, a $20 balance isn't going to cause you so much financial harm, while a $20,000 balance could drive you into bankruptcy.
But what if you've racked up $1,000 in debt on your credit cards? While that certainly isn't a small amount of money, it's not as catastrophic as the amount of debt some people have.
In fact, a $1,000 balance may not hurt your credit score all that much. And if you manage to pay it off quickly, you may not even accrue that much interest against it.
Will owing $1,000 wreck your credit?
A big factor that goes into calculating your credit score is your credit utilization ratio, which measures the percentage of revolving credit you're using at once. Once that ratio exceeds 30%, your credit score can start to take a big hit.
If you owe $1,000 across your credit cards but have a total credit limit of $10,000, that's only 10% utilization. That means a balance of $1,000 shouldn't have too negative an impact on your credit score.
Things would be different, however, if you owed $1,000 against a total credit limit of $3,000. In that case, you'd be looking at 33% utilization, which is far less ideal.
How quickly can you pay off $1,000 of debt?
The problem with carrying a credit card balance is accumulating interest on that debt. Let's say you owe $1,000 on a credit card charging 20% interest, and it takes you two years to pay your balance off. That could mean paying around $220 in interest. On the other hand, if you pay off that balance in six months, you'll only spend around $60 in interest.
As such, the extent to which a $1,000 credit card balance will damage your finances will hinge on how quickly you can pay that debt off. Perhaps you have a tax refund coming your way that will knock out your $1,000 balance within a month or two of accruing it. In that case, your interest charges will be minimal.
Similarly, you may be able to pick up a side hustle that pays you $500 a month, making it possible to pay off your balance in two months. Once again, that will result in a small amount of interest -- an amount you can most likely recover from pretty easily.
Avoiding debt in the first place
A $1,000 credit card balance won't necessarily doom you to years of financial distress. But it's definitely better to avoid owing any money on your credit cards.
To steer clear of that scenario, aim to build yourself a solid emergency fund -- one with enough cash to cover a good three months of living expenses. Having cash reserves could make it so you're not stuck falling back on a credit card when unplanned bills pop up. And that could help you avoid losing any money to interest.
Alert: our top-rated cash back card now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.
FAQs
Once that ratio exceeds 30%, your credit score can start to take a big hit. If you owe $1,000 across your credit cards but have a total credit limit of $10,000, that's only 10% utilization. That means a balance of $1,000 shouldn't have too negative an impact on your credit score.
How much credit card debt is acceptable? ›
But ideally you should never spend more than 10% of your take-home pay towards credit card debt. So, for example, if you take home $2,500 a month, you should never pay more than $250 a month towards your credit card bills.
What amount is considered bad credit card debt? ›
Once this number gets above about 30%, it's bad for your credit. So, if you have $5,000 in credit card debt and $10,000 in credit limits, that 50% utilization would hurt your credit. Late payments: If your credit card payment is late by 30 days or more, the card issuer can report it to the credit bureaus.
What is the max you should owe on a credit card? ›
The key is to keep your balance at or below 30 percent of your credit limit to help improve and maintain a good credit score, which means having no balance at all is even more helpful.
How much debt is acceptable? ›
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.
Is $1000 a lot of debt? ›
While that certainly isn't a small amount of money, it's not as catastrophic as the amount of debt some people have. In fact, a $1,000 balance may not hurt your credit score all that much. And if you manage to pay it off quickly, you may not even accrue that much interest against it.
What is considered excessive debt? ›
If you cannot afford to pay your minimum debt payments, your debt amount is unreasonable. The 28/36 rule states that no more than 28% of a household's gross income should be spent on housing and no more than 36% on housing plus other debt.
What is a bad level of debt? ›
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
What is a bad debt amount? ›
Bad debt is an amount of money that a creditor must write off if a borrower defaults on the loans. If a creditor has a bad debt on the books, it becomes uncollectible and is recorded as a charge-off.
Is $5000 in credit card debt bad? ›
$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt. There are a few things you can do to pay your debt off faster - potentially saving thousands of dollars in the process.
The Consumer Financial Protection Bureau recommends keeping your credit utilization under 30%. If you have a card with a credit limit of $1,000, try to keep your balance below $300.
What if my credit card has a credit limit of $1 000? ›
For example, if you have a credit card with a credit limit of $1,000, that means you can spend up to $1,000 on your card. But once you reach that limit, you'll need to start paying off what you owe before you can borrow more money with your card. Remember, it's a good idea to not use all your available credit.
What is the amount you can safely owe on your card? ›
Using more than 30% of your available credit on your cards can hurt your credit score. The lower you can get your balance relative to your limit, the better for your score. (It's best to pay it off every month if you can.)
What is unmanageable debt? ›
Personal debt can be considered to be unmanageable when the level of required repayments cannot be met through normal income streams. This would usually occur over a sustained period of time, causing overall debt levels to increase to a level beyond which somebody is able to pay.
How much debt is too risky? ›
Debt-to-Income Ratio
It is expressed as a percentage. You should shoot for 35% or less (more on this shortly). Recurring monthly debt is bills you must pay every month, like mortgage or rent, car payment, credit cards, student loan and monthly debt bill.
How much credit card debt is bad? ›
Calculating credit utilization is fairly straightforward: Add up the credit limits of all the credit cards you have to find a total credit limit. Then add up the balances on all your credit cards and compare the two numbers. If your total balance is more than 30% of the total credit limit, you may be in too much debt.
Is $5000 in credit card debt a lot? ›
$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt.
What is the 28 36 rule? ›
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.
How much credit card debt is too much to buy a house? ›
It's best to keep your DTI ratio at a 40% maximum to qualify for a mortgage, though some lenders make exceptions for DTI ratios up to 50% — especially if borrowers have high credit scores or large down payments.
What is the average credit card debt for a 30 year old? ›
Your evolving lifestyle can cost you. The average credit card debt for those in their 30s is $4,110, significantly more than the $1,462 owed by people ages 18 to 29. You should consider not only how this figure can impact your overall financial life, but also how it can affect your credit rating.
