The average credit card APR sits between 20% and 25%. If you carry a $5,000 balance, you’re looking at $1,000 to $1,250 in interest charges every year. Many people underestimate just how much these interest payments add up over time.

What makes credit card debt particularly dangerous is that interest compounds daily. Your interest charges get added to your balance. Then, you pay interest on that interest the very next day. This creates a snowball effect where your debt grows faster than most expect.

Most of your minimum payment goes straight to interest rather than reducing your actual debt. For example, on a $3,000 balance with a 24% APR, a $90 minimum payment might only reduce your principal by $30. The other $60 goes to interest payments. This creates a cycle where your balance barely decreases month after month.

This high-interest debt also damages your credit score by increasing your credit utilization ratio. A high ratio signals to credit bureaus that you’re relying too heavily on credit, which can drop your score significantly. Many people don’t realize their credit score suffers even if they make all their minimum payments on time.