What does revolving debt mean?

Revolving debt describes credit accounts that can be reused as long as the account is open and payments are made on time.

You use revolving credit when you pay for something using your credit card, borrow money through a home equity line of credit (HELOC) or use any other line of credit.

Credit accounts such as these are called revolving credit and typically have higher interest rates as they are not secured by collateral (an asset such as your home).

Revolving credit doesn’t require you to make a fixed payment. Your minimum monthly payment is a percentage of your total balance, so you must manage these types of credit accounts responsibly to avoid getting an expensive bill each month.

The cost of revolving debt varies depending on how much you owe, and there is interest charged each month.

Be mindful that if you only pay the minimum amount, the balance can increase quickly, making it harder to reduce the balance and negatively affecting your credit through a high credit utilization ratio.

Managing revolving debt

Revolving debt balances are different each month because it depends on how much credit you use, along with your interest rate. Additionally, the interest rate is usually much higher for cash advances.

To ensure that interest charges don’t spiral out of control, make more than the minimum monthly payment.

Ideally, you’ll want to pay your balance in full every month to ensure you’re not only making payments towards the interest. If you miss a payment, it will damage your credit score and negative information will appear on your credit report.

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