Why Carrying a Balance on Your Credit Card is a Horrible Habit

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More than a year after the pandemic hit, consumers are adopting all sorts of new financial habits, including shopping around for a new credit card.

Data from J.D. Power’s 2021 Credit Card Shopping Study found that the welcome bonus ranks as the top reason why people are signing up for a new credit card with consumers eager to earn rewards. But others are looking to credit cards as a financial crutch.

According to the June 2021 J.D. Power Banking and Payments Insight, nearly a quarter (23%) of respondents said that the pandemic was a factor in their decision to shop for a new card, with 4% pinpointing it as the primary reason. J.D. Power notes that this segment of new credit cardholders are revolvers, or customers who carry balances month to month and pay them off over time. They report being worse off financially in 2021, with credit scores of 659 and below.

While millions of Americans’ finances certainly took a huge blow during the pandemic, leaving them worse off a year later, carrying a balance is a surefire way to dig yourself into steep debt.

Here’s why carrying a balance on your credit card is a horrible habit

Credit cards charge interest, known as an APR, if you carry a balance past your payment due date. Unlike the interest you likely pay on a mortgage or auto loan, however, the rate you pay on a revolving credit card balance is notoriously high, usually in the double digits.

The average credit card APR is 16.30%, according to the Federal Reserve’s most recent data. And because the majority of credit card issuers compound interest on a daily basis — meaning your interest is added to your principal (original) balance at the end of every day — that debt is costing you more and more the longer it goes unpaid.

To avoid ever having to pay a high interest rate on your credit card, make it a habit to never carry a balance.

Think you’ll need to carry a balance? Consider these credit cards

When you are strapped for cash, paying off your balance in full each month may be easier said than done.

If you think you may end up carrying a balance at some point, consider a credit card with low interest. It’s not ideal to have a balance, but going with a low-interest card can at least save you some money.

Some of the best low interest credit cards we found include the Capital One VentureOne Rewards Credit Card for travel (regular 15.49% to 25.49% variable APR), and the U.S. Bank Visa® Platinum Card for earning an introductory 0% APR on new purchases during the first 20 billing cycles (after, 14.49% to 24.49% variable APR).

If you can qualify, your best bet is to get a credit card with an introductory 0% APR offer, since this will save you the most money and you won’t pay any interest until the intro period is over.

Capital One VentureOne Rewards Credit Card

Information about the Capital One VentureOne Rewards Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

  • Rewards

    5X miles on hotel and rental cars booked through Capital One Travel℠, 1.25X miles per dollar on every purchase

  • Welcome bonus

    20,000 bonus miles once you spend $500 on purchases within the first 3 months from account opening

  • Annual fee

  • Intro APR

    0% APR for 12 months on purchases

  • Regular APR

    15.49% to 25.49% variable

  • Balance transfer fee

    3% for promotional APR offers; none for balances transferred at regular APR

  • Foreign transaction fee

  • Credit needed

U.S. Bank Visa® Platinum Card

On U.S. Bank’s secure site

  • Rewards

  • Welcome bonus

  • Annual fee

  • Intro APR

    0% for the first 20 billing cycles on balance transfers and purchases

  • Regular APR

  • Balance transfer fee

    Either 3% of the amount of each transfer or $5 minimum, whichever is greater

  • Foreign transaction fee

  • Credit needed

If you already carry a large balance and pay high interest, look into transferring your debt to a balance transfer credit card so you can chip away at your credit card balance while interest stops accruing. The U.S. Bank Visa Platinum Card’s intro 0% APR offer for the first 20 billing cycles (after, 14.49% to 24.49% variable APR) applies to balance transfers as well.

Or consider the Citi® Double Cash Card, which offers an interest-free period for the first 18 months on balance transfers (after, 13.99% to 23.99% variable APR). Plus, cardholders earn 2% cash back: 1% on all eligible purchases and an additional 1% after paying their credit card bill.

Citi® Double Cash Card

  • Rewards

    2% cash back: 1% on all eligible purchases and an additional 1% after you pay your credit card bill

  • Welcome bonus

  • Annual fee

  • Intro APR

    0% for the first 18 months on balance transfers; N/A for purchases

  • Regular APR

    13.99% – 23.99% variable on purchases and balance transfers

  • Balance transfer fee

    Either $5 or 3% of the amount of each transfer, whichever is greater

  • Foreign transaction fee

  • Credit needed

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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