Nearly 1 in 2 Americans Make This Costly Credit Card Mistake

Credit cards can either help or hurt you financially. That depends on how you use them. Unfortunately, a recent credit card survey by Upgraded Points found that many adults are making a costly mistake.

Nearly half (46%) of Americans don't pay their full credit card balance each month. And 30% of Americans say they've been carrying a balance for two years or longer. While it's easy to fall into the habit of not paying off your credit card, this makes it much harder to get ahead with your finances.

Why you shouldn't carry a balance on your credit card

When you pay off your credit card's full balance every month, your card issuer doesn't charge you any interest on your purchases. But when you carry a balance, then you get charged interest on it.

That's a problem, because credit cards have extremely high interest rates. The average credit card interest rate is 21.47%, according to the most recent data available from the Federal Reserve.

Let's say your card has a 21% APR. You spend $4,000 on it. Here's how much more it would cost you to carry that balance instead of paying it in full:

• Paying the full $4,000: You don't spend any time in debt and pay $0 in interest.
• Paying $300 a month: You're in credit card debt for 16 months and pay $595 in interest.
• Paying the minimum: You're in credit card debt for 257 months and pay $6,375 in interest.

If you make small payments on credit card debt, or if you only pay the minimum amount owed, you'll be in debt for a long time. You'll also pay hundreds or even thousands of dollars in interest. Keep in mind that the example above also assumes you don't spend any more after that initial $4,000. If you do, it's even harder to become debt-free.

Upgraded Points found that 33% of Americans are paying $100 or more in credit card interest every month. It's often a long-term, expensive issue, which is why you should do your best to avoid it.

What to do if you can't pay your full credit card bill

If you don't carry a balance on your credit cards, stick to that habit. You'll be able to get the benefits that credit cards can offer, including rewards, bonuses, and building credit, without the drawbacks.

But what if you're in credit card debt? There are a few steps you can take to get your balance down to $0:

• Stop using your credit cards. When you're in debt, you don't want to add to it. That will make it even more difficult to pay off, and it will cost you more in interest. Use your debit card or cash until you pay off your credit card debt.
• Figure out a payment plan. Commit to paying a set amount toward your debt every month. As you saw in the example earlier, paying a fixed amount will get you out of debt much faster and cheaper than only paying the minimum. You can use The Ascent's credit card interest calculator to see how long it will take to pay off debt depending on the amount you pay.
• Look into balance transfer credit cards. If you have good credit (a credit score of 670 or higher), you may qualify for a balance transfer card. These can be helpful for paying off debt, because many of them offer a 0% intro APR on balance transfers. You can bring over your credit card debt, and then pay it off at a 0% APR during the intro period.

The best way to use credit cards is to pay them off in full every month. You're not required to do that, which is how lots of people get into trouble with credit cards.

If you've been carrying balances on your cards, prioritize paying them off. With a payment plan, and possibly a balance transfer card, you can make progress quickly. And when you're not getting dinged with hefty interest charges every month, you'll have more money to save, invest, or spend on yourself.