A $1,000 balance on a credit card may not sound like a very big balance. But, if you don't have enough in your savings account to pay this balance off when your statement comes, you will start owing interest on it. As of February 2023, the average interest rate on credit card accounts offered by commercial banks was 20.09%, according to the Federal Reserve.
If that interest rate sounds high, that's because it is. Paying so much in interest to borrow can have a big impact on your finances. But, just how big? Here's what you need to know.
What could a $1,000 balance really cost you?
Although a $1,000 balance isn't a huge amount, making only the minimum payments on this debt could mean you end up spending a fortune to become debt free. In fact, if you have a 2.00% minimum payment and you only pay the minimum on a card with a 20.09% rate, you would end up paying $2,126.17 in interest before your credit card debt was paid off for good. It would also take you 195 months to erase that $1,000 balance -- a total of 16.25 years.
A $1,000 balance can cost a fortune if you pay only the minimums because of the fact you won't make much progress at reducing the balance on the debt. Each payment will mostly just cover the interest charges instead of reducing the principal. If you're only paying off about $3 or $4 of the $1,000 each month and the rest just covers your creditor's fees, it takes a long time to become debt free.
How can you avoid getting hit with huge interest charges
The good news is, you don't have to let a $1,000 credit card balance haunt you for a decade and a half. You just have to pay more than the minimum payment due.
Ideally, you should pay off your balance in full so you don't owe any interest charges at all. If you pay off the $1,000 balance when your statement comes, your interest charges would be $0 and your credit card debt wouldn't cost you anything extra. In fact, if you had earned rewards, you'd end up better off for having used your card to charge items you had to purchase anyway.
If you can't pay off your balance in full when the statement comes, you can still dramatically reduce your interest paid by paying more than the minimum required. If you paid $100 a month instead of a minimum payment equaling 2% of your balance, you would be debt free in a year and would incur about $103.60 in interest charges.
The bottom line is, making only the minimum payment on your credit card is a recipe for disaster. Don't do it. Whether you owe $1,000 or your balance is more or less, you need to pay more than the minimum due each month to avoid a world of financial trouble. And the more you pay, the faster you can say goodbye to your credit card debt for good -- and the lower your interest costs will be over time.
FAQs
For example, if you have a $1,000 balance on a single credit card with a $4,000 credit limit, your utilization rate is 25%. According to the Consumer Financial Protection Bureau, experts recommend keeping your credit utilization below 30% of your total available credit.
How long does it take to pay off $1,000 on a credit card? ›
It will take 24 months to pay off $1,000 with payments of $50 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.
How much should I pay on a $1000 credit card? ›
A good guideline is the 30% rule: Use no more than 30% of your credit limit to keep your debt-to-credit ratio strong. Staying under 10% is even better. In a real-life budget, the 30% rule works like this: If you have a card with a $1,000 credit limit, it's best not to have more than a $300 balance at any time.
How much will it cost in fees to transfer a $1000 balance to a credit card? ›
It costs $30 to $50 in fees to transfer a $1,000 balance to a credit card, in most cases, as balance transfer fees on credit cards usually equal 3% to 5% of the amount transferred.
What is considered a high credit card balance? ›
Be aware that the 30 percent threshold applies both to your total debt and each account. You want to maintain less than a 30 percent balance on each card and overall.
What is the average person's credit card balance? ›
On an individual level, the overall average balance is around $6,501, per Experian's data. Other generations' credit card debt falls closer to that average or below. Here's the average amount of credit card debt Americans hold by age as of the third quarter of 2023, according to Experian.
What is a good credit limit for a 30 year old? ›
Good Credit Limits by Age Group
| Age Group | Good Credit Limit |
|---|
| Gen Z (18-24) | $13,000 |
| Millennials (24-39) | $28,000 |
| Gen X (40-55) | $39,000 |
| Baby Boomers (56-74) | $42,000 |
1 more rowAug 21, 2024
Chip Lupo, Credit Card Writer
The minimum payment on a $2,000 credit card balance is at least $20, plus any fees, interest, and past-due amounts, if applicable. If you were late making a payment for the previous billing period, the credit card company may also add a late fee on top of your standard minimum payment.
What is the monthly payment on a 5000 credit card? ›
To pay off $5,000 in credit card debt within 36 months, you will need to pay $181 per month, assuming an APR of 18%. You would incur $1,519 in interest charges during that time, but you could avoid much of this extra cost and pay off your debt faster by using a 0% APR balance transfer credit card.
Do balance transfers hurt your credit? ›
A balance transfer can improve your credit over time as you work toward paying off your debt. But it can hurt your credit if you open several new cards, transfer your balance multiple times or add to your debt.
Your old credit card will remain open after the balance transfer is complete, and you can decide whether you want to keep using it, stop spending on it, or close your account.
Is it wise to transfer credit card balances? ›
If you transfer the balance from a credit card with a higher APR to a card with a lower rate, or even an introductory 0-percent APR period, you can save money on interest as you work to pay down the debt. Ultimately, your goal should be to pay off the debt you transferred entirely during any introductory period.
Is a 1000 dollar credit limit good? ›
A $1,000 credit card limit is good if you have fair, limited or bad credit, as cards in those categories have low minimum limits. The average credit card limit overall is around $13,000, but you typically need above-average credit, a high income and little to no existing debt to get a limit that high.
Is 1000 dollars a lot of debt? ›
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.
How much should I spend with a 1000 credit card limit? ›
But if you're going to pay it off monthly, then you shouldn't spend any more than 50%. Because if they see if your balance is more than 50%, they will not increase your balance, and it will lower your score. People spend too much time worrying about their credit scores, while ignoring their actual financial situation.
How much of a balance should you keep on a credit card? ›
To maintain a healthy credit score, it's important to keep your credit utilization rate (CUR) low. The general rule of thumb has been that you don't want your CUR to exceed 30%, but increasingly financial experts are recommending that you don't want to go above 10% if you really want an excellent credit score.
