Revolving debt usually refers to credit card debt. This is debt that changes from month to month as people make purchases and make payments. It is therefore differentiated from the type of debt people have when they borrow a defined amount of money at a given time like for a personal loan or to buy a car or a house. The debt from these types of loans gradually decreases, and it is not possible to increase the debt without getting a new loan.
With things like credit card debt, people can choose to owe as much or as little as they want, up to the limit of the credit card. There generally is an upper limit amount on what people can owe, and limits are often determined by credit rating. Those with excellent credit may be able to get high limit cards, but this doesn’t mean that the revolving debt amount has to be high. Instead, if people pay off all they owe on a card each month, the amount of debt is small, and can contribute to a good credit rating.
Another thing that can change with revolving debt is monthly payment owed. Most credit card companies set limits of a certain percentage of the debt that must be paid each month. If there is no debt then no payment may be due. Otherwise, credit cards may require minimum payments of several percentage points of the debt or they may only require payment to cover the interest rate charged. Borrowers can pay more of the debt each month based on choice, availability of funds and preference.
When revolving debt remains from month to month, the debt amount carries over or revolves to the next month, and interest is charged on any debt that remains unpaid. In addition, amount of available credit goes up or down depending on the debt, so the term revolving credit is often intricately connected to revolving debt. As debt gets paid down, more credit is available, but as debt increases, less total amount can be borrowed.
It used to be that consumers in good credit standing could count on their revolving debt to not greatly influence their ability to borrow more money up to their credit limit. This has changed somewhat in the late 2000s. Some companies have closed the accounts of those with revolving credit lines or significantly raised interest on new purchases. A few companies have also reduced line of credit when accounts aren’t used frequently or if borrowers miss a payment or turn in a late payment. These extra measures may change the way that revolving debt and credit are viewed in the future, and it may no longer be possible to count on initial credit lines offered by a company remaining the same.