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Credit cards can be useful tools for earning cash back rewards or for getting travel discounts on airline tickets and hotels. But putting too much money on your credit card can quickly get you into financial trouble.
Depending on your credit limit, having $15,000 or more on your card could bring some negative effects you might not realize. Here are a few things you should be aware of.
1. Your credit score could go down
Part of your credit score is determined by how much of your credit you're using. For example, if your total available credit is $20,000 and you have a balance of $1,000, your credit utilization is just 5%.
But let's say, by some stroke of terrible luck, your car breaks down, your roof needs repairing, and you have to buy a new computer all in the same month. Your emergency fund is tapped out, so you reach for your credit card. Suddenly, you've spent $15,000 of your $20,000 limit.
Now your credit utilization is 75%. Most credit card companies want utilization rates below 30%, and your score could go down if it's higher than this. The good news is that once you pay down your balance, your score will improve.
2. You might be denied other loans
Depending on your income and credit limit, having a $15,000 balance on your credit card could be a red flag to other lenders.
For example, if you apply for a mortgage, the lender will look at how much debt you have relative to your income. If your debt-to-income ratio is too high, you could be denied the mortgage or be approved for much less than you would if you didn't have the debt.
And it's not just mortgage lenders who consider your debt-to-income ratio. If your debts are too high, you could be denied a travel credit card or other type of card.
3. You'll pay a ton in interest
The average annual percentage rate (APR) for a credit card is up to 21.5% now. This is an extremely high amount of interest to pay, and it could add up very quickly with a $15,000 balance. Take a look:
| Years paying off a $15,000 balance | Total interest paid |
|---|
| 1 | $1,804 |
| 2 | $3,587 |
| 3 | $5,483 |
Data source: Author's calculations
With credit card interest rates so high right now, it might be worth exploring other options. Some cards offer a 0% introductory rate, making paying your balance easier.
These balance transfer cards typically charge 0% interest for 15 to 21 months, which can help you catch up on payments, especially if your balance is high. Just keep in mind that you usually have to pay a fee of about 3% to 5% of the balance you're transferring.
4. Your card might be denied
Credit card companies constantly monitor spending for anything out of the ordinary. This means that if you don't usually spend $15,000 with your credit card on a single weekend, your card issuer will likely decline the charges.
This protects both you and the credit card company from fraudulent purchases. It's also possible that the charges could go through, but you might receive a call from the credit card company confirming it was you who made the purchases.
Carrying a significant balance on your credit card can weigh heavily on your budget and damage your credit if you struggle to make payments. If you're having difficulty paying off a large balance, consider a balance transfer card to help you catch up on payments. Better yet, build up your emergency fund in a high-yield savings account to be better prepared for unexpected expenses.
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