A balance of $1,000 isn’t ideal, but it’s also not a deal breaker.
- Owing money on a credit card is a situation you should try to avoid.
- If you carry a smaller balance, it may not cost you as much in interest or hurt your credit score as much.
As a general rule of thumb, it’s a good idea to stay away from credit card debt, whether it’s a $20 balance or a $20,000 balance. Of course, a balance of $20 won’t cause you as much financial damage, while a balance of $20,000 could bankrupt you.
But what if you’ve racked up $1,000 in debt on your credit cards? While that’s certainly not a small amount of money, it’s not nearly as catastrophic as the amount of debt some people carry.
In fact, a balance of $1,000 may not hurt your credit score very much. And if you manage to pay it off quickly, you may not even accrue that much interest against it.
Will owing $1,000 ruin your credit?
An important factor in calculating your credit score is your credit utilization ratio, which measures the percentage of revolving credit you’re using at one time. Once that ratio exceeds 30%, your credit score can start to take a big hit.
If you owe $1,000 on your credit cards but have a total credit limit of $10,000, that’s only 10% utilization. That means a $1,000 balance shouldn’t have too much of a negative impact on your credit score.
However, things would be different 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 much less than ideal.
How fast can you pay off $1,000 of debt?
The problem with carrying a credit card balance is accruing interest on that debt. Let’s say you owe $1,000 on a credit card that charges 20% interest and it takes you two years to pay off the balance. 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 about $60 in interest.
As such, the extent to which a $1,000 credit card balance will hurt your finances will depend on how quickly you can pay off that debt. Perhaps you have a tax refund on the way that will wipe out your $1,000 balance within a month or two of accumulating it. In that case, your interest charges will be minimal.
Similarly, you may be able to choose a side job that pays you $500 per month, which will allow you to pay off your balance in two months. Again, that will result in a small amount of interest, an amount that you can probably recover from quite easily.
Avoid debt in the first place
A $1,000 credit card balance won’t necessarily doom you to years of financial hardship. But it’s definitely best to avoid owing money on your credit cards.
To avoid that scenario, try to build a solid emergency fund, one with enough cash to cover a good three months of living expenses. Having cash reserves might keep you from being stuck turning to a credit card when unplanned bills come up. And that could help you avoid losing money on interest.
The best credit card eliminates interest until the end of 2023
If you have credit card debt, transfer it to this top balance transfer card locks you in with a 0% introductory APR through the end of 2023! In addition, you will not pay an annual fee. Those are just some of the reasons why our experts rate this card as one of the best options to help you control your debt. Read the full review of The Ascent free and apply in just 2 minutes.