My credit card debt - crushing, or meh?

In My Humble Opinion
1

I have credit card debt. I know, this puts me in a truly elite club amongst Americans. Thing is, I have no idea how the volume of my credit card debt stacks up against that of others. So I was hoping you guys could help me to gain a little perspective.

Credit card debt is my only debt - no student loan repayments, no car payment, nothing. Just the normal utilities/rent each month, plus the card payment.

I am a business owner (as an independent life/health insurance agent, I technically “own my own agency”). As such, the vast majority of my debt is business related - marketing, supplies, dinners for clients, that sort of thing. Still, thanks to my abysmal bookkeeping and horrendous planning, my business debt is currently intermingled with personal debt.

I estimate that 65 - 75% of my credit card debt is business related, with the remainder being personal debt. My present card balance is $10,000, give or take a few cents. I’ll be $11,000 by the end of the week because I’m moving and have a slew of unforeseen expenses which I unfortunately must finance.

I’ve never missed a payment, and my credit is excellent. My minimum monthly payment is about $160, but I always pay more than that (how much more? Depends on the month).

So, tell me, at 24 years old with the majority of my credit card debt being related to my startup business, would you call my $10,000 of debt overwhelming, miniscule, or nothing special?
(This is one in a series of questions that I’ve always wanted to ask but have been too worried of the appropriateness of the inquiry. Next up: I always worry that I use more toilet paper than the normal person, but I have no way of telling…)

2

I’d say miniscule.

You don’t have a mortgage or car payment, so all your carrying is $10K in debt - it’s not really a huge amount, all things considered.

3

I don’t think it’s an astonishing amount of debt, but I personally would not be comfortable with it.

Is your income (and business) growing or are you just accumulating debt?

I think if you got a handle on your bookkeeping, you would be better able to determine whioch business costs were paying off for you.

4

That amount of credit card debt would cause me to lose sleep. Debt stresses me out so I may not be a “normal” response.

Why not get a line of credit, and pay off your credit card debt?

5

Considering that it’s for a business start-up and not for clothes, toys and expensive dinners, it’s not too bad but I agree with Thalia that there are better ways to get credit for your business.

6

My income and business are both growing, but unsteadily. There are peaks and valleys galore, but as I go on the highs are higher and the lows don’t dip down nearly as far.

I interviewed a bookkeeper about three weeks ago - she looked like she had seen a ghost when she first looked over my stuff, but composed herself and said she thought she’d be able to straighten it all out. We’re meeting again next week to assess the damage.

7

A line of credit secured by what? The OP mentioned he didn’t have a mortgage. If he/she owns a home outright, great. If not, then credit cards may be the only option.

8

It depends on the interest rate.

Here’s my situation:
Car loan (5.5% interest)
Savings account (2.2% interest)
Credit card (19% interest)

Compared to the car loan and savings account, I’m either paying 12% more or losing 17% by using the savings account.

9

(Sorry for the double post)

I should have included this in my original post. I’ve kept everything on this card because it has a 7.14% interest rate and I haven’t been able to beat it in the unsecured capital market (admittedly, I’ve not done a load of research into that area).

10

$10K is a manageable amount, but I’d say you have a problem because you’re not using credit properly. That $10K is going to keep growing because of your spending patterns.

Credit card debt should be used frugally only for unusual, large, one-time expenses. It can be a valuable tool for things like when your car breaks down or you need to pay for moving expenses. But it should not be used to finance day-to-day expenses. You should not be putting client dinners, regular business expenses, etc on the credit card unless you can completely pay that off at the end of the month.

So $10K isn’t bad, but only if you don’t let it grow. Right now I don’t see a plan for how you are going to pay it off. You are continuing to charge stuff and not pay it all off. Your balance is going to continue to grow and grow.

I would suggest stop using that card. Get a new card and use that for your day-to-day charges and pay it off completely every month. Continue to pay down the balance of the old card. So every month you pay off the new card and pay off part of the old card.

11

At my max I had about the same on credit cards, but I also had a car payment. I wasn’t running a business or anything. Mine was just day to day stuff with a low paying job.

I would call your 10K small to low medium amount. Depends on how long you have had it. If the debt has been growing over the years then I would be a little worried. If it is something that just happens as your business has lows, and gets paid off when you have a high I wouldn’t worry at all.

I got mine paid off along with the car. I am saving now, and feel much better. While the debt isn’t that big it goes without saying that none is even better.

-Otanx

12

To pay off the $11k with the $160 minimum and 7.14% interest, it would take you 88 months and you’d end up paying $3200 in interest. That’s like 7+ years to pay off those client dinners and other stuff.

Check out this Loan Calculator to see how long it will take to pay off your debt as you vary the payment.

13

How much more do you pay then the min? If you have $10k at 7.14% interest and pay the min only it would take you 79 months to pay that 10k off–which is almost 7 years. And that is not putting any additional credit debt onto it. In addition you will pay the credit card company roughly $2542 for this pleasure. So that is how I think you need to look at it. Yes you have a good interest rate, but even with that rate you are paying a ton of interest if you pay near the min. payment.

from here:
http://www.livingonadime.com/articles/debtcalc.htm

14

You’re right. I researched small business loans when I first set out and quickly realized that I could use my own, extant line of credit more effectively - it’s already there and the interest rate is competitive. My initial intent was to use $10,000 as a “business loan” and have $5000 of credit left over for things like you mentioned - large, unusual expenses.

I never carried a balance on my credit card until November of last year when I started accruing business costs. The current balance is 100% gathered from last November to now, and I can’t decide if that’s a good or bad thing. Good - hey, I only carry a balance when I have business expenses! Bad - That’s a lot at once.

My current plan to manage the debt is similar to the one you’ve proposed - morph the current card into a business-only card, obtain a much smaller card for emergency expenses. I currently put only business expenses on the CC and pay cash for all of my stuff (except for these moving costs and other, “woah wtf” stuff). I’m also planning to set up an LLC for my agency, put business revenue into an account for that, and pay myself a salary to a personal account. Then, with what’s left in the business checking account, pay off the business debt. Based on what my current earnings curve is and what my expenses look like, I think my CC will hit $13,000 by the end of November, then drop to $8,000 by the first of the year, then to nothing by next September.

15

(Again, sorry for the double post - I’m coming over to the laptop between packing boxes).

Minimum is $160 a month, and I make at least two $200 payments each month. According to your link, that’s 31 months to total payoff. I will be paying off a large chunk of it before the end of the year ($5,000 at once when a large case that I’ve been working on for MONTHS finally closes! Woohoo!), so that drops it by ten months or so.

Edited to add: I realize now that saying “client dinner” sounds a little…foo foo. Whenever I buy a client a meal, it’s a direct tax write-off so there is at least a little hidden benefit. Just clarifying (err…fine, just making myself feel better).

16

The answer to the question really depends on the ratio of debt to your income. Since you didn’t give your income, we can’t really say.

But $10k? Total?? Snerk. I owe more than that on one of my many cards.

Having credit cards is not inherently bad. You probably need a 2nd card, actually – a business card, to be used on business expenses.

17

$11,000 for your age seems a tad high. If you lose your income, do you have an alternate way to pay this bill or property to refinance to keep you from bankruptcy? Family or other safety net? If the answer is no, then you should get aggressive about eliminating this debt load.

And to your second question. Please continue to us as much toilet paper as you can without plugging up the sewage system. That is the optimum amount. Our family income depends upon you. Take a look at the wrapping before you rip it off, my wife did that.

18

Depends entirely on your income. At its highest I owed about £22,000 on credit cards, or six months’ gross salary. That was too much for comfort, IMHO.

19

That was one of the first concerns I had when I considered quitting my job in a horrid economy and opening the doors of Georgia Insurance Options: “What do I do if this tanks?” My mother has made it clear that if everything tanks, I can rely 100% on her - I do not want to do this, I feel childish for even saying it, and I’d truly have to be living in my car to take advantage of her generosity, but the last resort is there. I don’t think it’d come to that for four reasons:

  1. I do have a couple of months worth of cash in the bank. That will provide a short-term cushion.

  2. With the nature of my business, it’s virtually impossible that I’d lose 100% of my income all at once. If I sit around and literally do nothing, I make about $200 a month, and that’ll increase monthly to about $1000/month in January, plateau, then taper back down to about $750 a month and hold steady next summer. The only way that this value will drop is if I lose clients, which I almost certainly will due to unavoidable attrition. However, the chance of losing them all at once is, statistically and predicted to be by experience, essentially nil. It’d be more of a “writing on the wall” situation, giving me time to escape into an alternative income stream. $750 isn’t a lot, I’ll grant you, but I’m very young and my non-business expenses are very, very low - that little bit of cash will stretch my “number of months of cash-on-hand” quite a ways.

  3. I’m extremely active in the Atlanta community - I hate to call myself “well-connected” because that sounds very arrogant, but I network quite a bit for my job and know folks at several staffing firms, sales centers, etc. I think I could find a job quickly (and when I say quickly, I mean within three or four months).

  4. I’m self-employed, so even though my boss is a jerk I can’t be fired.

I appreciate the replies, everyone. The picture I’m getting is that it’s an uncomfortable level of debt, but not something that should be crushing my soul. I should, and do, have a plan to eliminate it, and I should, and do, have a safety net. I feel better, but no less dedicated to eliminating it.

For those that noted that it’s really tough to say without knowing my income, hell, even I don’t know my income. Ask my bookkeeper after we meet again - it’s tough to say what the business has made and what I’ve made, and since taxes aren’t taken out the adjustment is off (don’t worry! I have enough back to very comfortably cover my taxes without the least bit of worry, and I have absolutely ZERO intention of ever using that money for anything else). If I had to estimate, I’d say I’ve probably grossed $30,000 so far this year and will end the year around $60,000. Ask me again in a week.

Also, what brand did your wife do the wrapping for? I always buy the one with the puppy.

20

I can’t answer for her. (hint: there is a Georgia in the name of the company)