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60% of Credit Card Accounts Carry a Balance. Here's Why That Isn't Necessarily a Bad Thing.

By Jordan Wathen - Oct 16, 2017 at 8:00AM

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Carrying a balance on your credit card doesn't necessarily make you an irresponsible credit card user.

It's generally a bad thing to carry a balance on a credit card. The typical credit card charges an interest rate of about 15% per year on balances, with some rising as high as 29% when penalty interest comes into play. Given short-term interest rates are still pretty darn close to zero, paying an interest rate in the double digits is a big, fat mistake.

But if you do it, you aren't alone. Thanks to the Federal Reserve's recent payments study, we learned that more than three out of five credit card accounts had a balance that was carried over at least once from one month to the next in 2015, the most recent period for which data is available.

Carrying a balance isn't always a bad move

You can carry a balance on a credit card and use a credit card responsibly. These behaviors are not necessarily mutually exclusive.

In fact, many cardholders are now taking advantage of intense competition in the credit card industry to score 0% intro APRs on their purchases and balance transfers for 18 months or more. Even cash-back rewards cards, which are commonly marketed toward high-spending people who don't carry balances, are getting in on the 0% intro APR game.

close up of a credit card

Image source: Getty Images.

It's not all that surprising that many people would carry a balance at a 0% APR, if they could. Cardholders commonly use 0% intro APRs to break up large purchases into 18 months of bite-sized monthly payments, ultimately paying nothing in interest on the balance when it is paid off before the end of the promotional period.

Others use balance-transfer promotions as a way to put them on the fast track toward paying off credit card debt for good. In 2015, the last year for which data is available, Americans opened more than 58 million credit cards, the highest since 2008. Many probably received 0% intro APRs as a perk of opening the account.

But all bills eventually come due

Of course, all credit cards that offer introductory rates eventually revert to ordinary credit cards with relatively high interest rates. But in the meantime, cardholders who have existing credit card balances would be silly not to reduce their interest rate by transferring a balance to a card with a 0% APR, even if the rate is only temporary.

Moving a $5,000 balance from one card with a 15% APR to another card with a 0% APR could save someone as much as $615 in interest if the balance is paid off with 18 equal monthly payments. Similarly, putting a $15,000 purchase on a 0% APR credit card so as to keep your cash in a high-interest savings account for 18 months yields hundreds of dollars in incremental interest income in addition to $300 of rewards on a 2% cash-back card.

Chart of the percentage of people who carry a balance of $5,000 or more on a credit card by credit score

Image source: author; data from the Federal Reserve.

Those who have credit scores that teeter around "prime" are most likely to have a balance of $5,000 or more, with 37% of people in this cohort carrying a balance that high. It's this group that is the target market for 0% promotional rates on balance transfers, as these cards are most often marketed to people with merely "good" credit. 

All this is to say that while there is never a good time to carry a balance at an ordinary credit card interest rate, given the proliferation of promotional interest rates, it certainly isn't the worst time to carry a balance on a credit card, either.

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