Carrying a high credit card balance after bankruptcy happens for a few key reasons, most of which come down to misunderstanding credit utilization, financial struggles, or bad habits. Here’s how it happens:

1. Misunderstanding How Credit Works

Many people believe that using a high percentage of their credit limit helps build their credit faster. In reality, high credit utilization (above 30%) lowers your score. If someone has a $500 limit and spends $400, it looks risky to lenders, even if they pay it off later.

How to avoid it:

• Keep usage below 10%—on a $500 limit, don’t carry more than $50 at any time.
• Make multiple payments per month to keep balances low.

2. Using Credit Cards for Everyday Expenses

After bankruptcy, cash flow can be tight, and many people rely on credit for gas, groceries, and small bills. This quickly leads to balances stacking up, especially if they don’t pay the full amount each month.

How to avoid it:

• Only use credit for small, planned expenses that you can pay off immediately.
• Use a budgeting app (Mint, YNAB) to track spending and limit reliance on credit.

3. Not Paying Off the Full Balance Each Month

If someone only pays the minimum, interest adds up quickly, making it harder to get out of debt. Even small purchases can become expensive if left unpaid for months.

How to avoid it:

• Always pay in full whenever possible to avoid interest.
• If carrying a balance is unavoidable, prioritize paying it down fast.

4. Small Limits Make It Easy to Hit High Utilization

Secured credit cards often have low limits ($200-$500). Even one or two purchases can push utilization past 30%, which hurts credit scores.

How to avoid it:

• Make multiple payments per month to keep balances low.
• Request a credit limit increase after 6-12 months of good payment history.

5. Emergencies Force People to Use Credit

If someone doesn’t have an emergency fund, unexpected expenses (car repairs, medical bills, etc.) may end up on a credit card. This creates a high balance that’s hard to pay off quickly.

How to avoid it:

• Build a small emergency fund ($500-$1,000) to avoid relying on credit.
• Set up automatic savings deposits from each paycheck, even if it’s small.

6. Old Spending Habits Return

After bankruptcy, some people fall back into old habits, such as spending beyond their means or impulse buying.

How to avoid it:

• Track spending with a budget and use only debit or cash for non-essentials.
• Before any non-essential purchase, ask: “Do I really need this?”

How to Fix It If You Already Have a High Balance

• Pay more than the minimum to reduce the balance quickly.
• Make extra payments before the statement closes to lower reported utilization.
• If possible, transfer some debt to a 0% APR card (if you qualify).