How Much Could a $1,000 Credit Card Balance Cost You Over Time?

A $1,000 balance on a credit card may not sound like a very big balance. But, if you don't have enough in your savings account to pay this balance off when your statement comes, you will start owing interest on it. As of February 2023, the average interest rate on credit card accounts offered by commercial banks was 20.09%, according to the Federal Reserve.

If that interest rate sounds high, that's because it is. Paying so much in interest to borrow can have a big impact on your finances. But, just how big? Here's what you need to know.

What could a $1,000 balance really cost you?

Although a $1,000 balance isn't a huge amount, making only the minimum payments on this debt could mean you end up spending a fortune to become debt free. In fact, if you have a 2.00% minimum payment and you only pay the minimum on a card with a 20.09% rate, you would end up paying $2,126.17 in interest before your credit card debt was paid off for good. It would also take you 195 months to erase that $1,000 balance -- a total of 16.25 years.

A $1,000 balance can cost a fortune if you pay only the minimums because of the fact you won't make much progress at reducing the balance on the debt. Each payment will mostly just cover the interest charges instead of reducing the principal. If you're only paying off about $3 or $4 of the $1,000 each month and the rest just covers your creditor's fees, it takes a long time to become debt free.

How can you avoid getting hit with huge interest charges

The good news is, you don't have to let a $1,000 credit card balance haunt you for a decade and a half. You just have to pay more than the minimum payment due.

Ideally, you should pay off your balance in full so you don't owe any interest charges at all. If you pay off the $1,000 balance when your statement comes, your interest charges would be $0 and your credit card debt wouldn't cost you anything extra. In fact, if you had earned rewards, you'd end up better off for having used your card to charge items you had to purchase anyway.

If you can't pay off your balance in full when the statement comes, you can still dramatically reduce your interest paid by paying more than the minimum required. If you paid $100 a month instead of a minimum payment equaling 2% of your balance, you would be debt free in a year and would incur about $103.60 in interest charges.

The bottom line is, making only the minimum payment on your credit card is a recipe for disaster. Don't do it. Whether you owe $1,000 or your balance is more or less, you need to pay more than the minimum due each month to avoid a world of financial trouble. And the more you pay, the faster you can say goodbye to your credit card debt for good -- and the lower your interest costs will be over time.