What Does Credit Card Debt Mean?

If you're carrying a large amount of credit card debt, you're not alone. According to The Palm Beach Post, the average American carried a credit card balance of $15,519 in 2010. In most cases, carrying a credit card balance is not beneficial to your financial health, although there are some situations where credit cards can have a positive effect.

Financial Burden

Credit cards typically come with high interest rates, sometimes in excess of 20 percent. The higher the interest rate, the more you have to pay back to the credit card company and the larger the financial burden on you and your family. If you can only afford to make the minimum required monthly payment toward your outstanding balance, it could take a decade or more to pay it off, even if you stop making additional charges.

Lost Opportunity

The more you owe in credit card debt and the larger your monthly payment obligation, the less money you'll have to apply to reaching your financial goals. You may have difficulty saving money for your children's college education and your own retirement, and coming up with the down payment for a home may not be possible. You also may not have extra money to set aside each month for investing or for the occasional night out with family or friends.

Ruining Credit

If your credit card debt gets to the point where you can no longer manage it, you may end up ruining your credit. For people who can no longer keep up with the minimum payments, the only option may be to file bankruptcy so they can hang on to their home or vehicle. Adverse credit makes it difficult to borrow money at a reasonable interest rate, or even to obtain a loan at all.

Building Credit

On the positive side, credit card debt that is managed responsibly can actually help you establish credit for the first time or re-establish it when coming out of bankruptcy. Handling credit card debt responsibly means paying the bill on time each month and maintaining a healthy ratio of outstanding balance to available credit. In general, using no more than 30 percent of your available balance will help your credit score, according to Kiplinger.com. However, not using a card at all will not necessarily help your credit, as you aren't establishing a credit history.