How does carrying a credit card balance hurt you financially?

Carrying a credit card balance means you pay interest, typically at rates between 20% and 30% annually, on whatever amount you owe. This interest compounds, meaning you pay interest on your interest, causing the debt to grow quickly if you only make minimum payments. A $1,000 balance at 25% APR can cost you hundreds of dollars in interest and take years to pay off if you only pay the minimum each month. Beyond interest charges, high balances relative to your credit limit raise your credit utilization ratio, which damages your credit score. A lower score can lead to higher interest rates on future loans like mortgages or car loans, costing you even more money over time. The combined effect significantly reduces your long-term wealth.