I’m a big fan of having and using credit cards for everyday spending, but I am not a big fan of carrying a substantial amount of credit card debt from one month to the next. Even paying one month’s worth of interest can potentially erase any cash back rewards or miles you get for credit card spending, and if you need to borrow money, there are almost always less expensive ways to do it.
Having said that, I’m okay with carrying a credit card balance in three specific situations.
1. When you aren’t paying interest
The first situation is perhaps the most obvious. If you have a 0% intro APR offer or some other zero-interest situation, it can make sense to carry a balance on a credit card. While credit card interest rates have risen significantly in recent years, there are still plenty of readily available 0% intro APR offers for both purchases and balance transfers.
For example, if you want to redo the flooring in your house and can pay it off within a year or so, getting a 0% intro APR credit card could be the most economical way to finance it.
Of course, it’s worth emphasizing that this only makes sense if you’re almost positive that you’ll be able to pay the balance off before interest starts to accumulate on the account. But this is a situation where carrying a credit card balance could actually be a better way to pay for larger purchases than the alternatives.
2. In an emergency
Let’s be clear. A credit card is not a substitute for an emergency fund. Financial planners generally recommend that you aim to have six months’ worth of expenses set aside in an easily accessible account. But the reality is that it can take a while to get there — in fact, I didn’t achieve a six-month emergency fund until I was well into my 30s.
If you have emergency savings, that’s almost always a better way to pay for unforeseen expenses than accumulating credit card debt. But if you absolutely need to fund an expense you don’t have the money for, and there aren’t any quick ways to borrow the money at a lower interest rate, such as a personal loan, a credit card can be a financial safety net.
3. To boost your credit score
This might sound counterintuitive, but the people with the highest credit scores tend to carry a modest credit card balance. In fact, the average person with a perfect 850 FICO® Score carries a balance equal to about 4% of their available credit. So, if you have a total $10,000 credit limit, this will mean carrying about $400.
Now, doing this won’t necessarily get you a perfect credit score, and if you want to avoid carrying a balance altogether for your own peace of mind (and to avoid interest charges), it’s entirely possible to build a very strong credit score without carrying a balance at all. But the credit formula tends to reward people for using their credit responsibly, and having a small balance is one way to do it.
The bottom line
Not all of these situations will apply to everyone, and just because it’s “okay” to carry a balance in these situations doesn’t necessarily mean it’s the best move for you. But the point is that while credit card debt is usually a bad thing, that isn’t the case 100% of the time.
