It can be really tricky to tell when exactly debt crosses the line from manageable to problematic. One week you’re plugging along, as usual, the next you realize you’ve gotten in over your head.
Everyone’s financial situation looks different, so there’s not necessarily a universal way to determine whether the debt has become a problem. However, there are six warning signs worth considering. If any of these apply to you, it’s time to make some financial changes that will allow you to work toward becoming debt-free.
Falling Behind on Payments
Probably the biggest red flag is falling behind on payments, whether that means paying late or missing them entirely. There’s a big difference between missing a due date by a few days because you’ve been busy and missing a due date because you’re scrambling to come up with the funds.
If your payment record has been patchy lately, take a look at why — and figure out your options for getting caught up before your credit score begins dropping and collectors start calling.
Paying the Minimum or Less
Paying the minimum amount due on debts may seem like a perfectly fine way to keep your head above water when funds are low. But interest-only keeps accumulating, which means the amount you owe is growing in the background. This can put you in an even more difficult spot down the line — you’ll end up paying more toward those debts and for much longer. Debt settlement through a program like Freedom Debt Relief is one option for people struggling to make minimum payments.
Maxing Out One or More Credit Cards
There’s a big difference between can and should when it comes to maxing out a credit card. Technically you’re allowed to spend up to the credit limit. But you should avoid doing so. Credit utilization, or the percentage of your total available credit you’re using factors into your credit score. Maxing out a card can lower your credit rating because it gives the appearance you’re struggling financially.
If you’re finding yourself in the position of having to max out one or more credit cards just to keep up with living expenses, that’s a sign you need to figure out how to address your debt head-on.
Losing Track of Your Debts
Unsure how much you owe — either because you’ve fallen behind on bookkeeping or you’re experiencing application denials? While it can be daunting at first, it’s important to keep close tabs on all your debts large and small. You can only come up with an effective plan if you know what you owe.
Using Cash Advances or Payday Loans
Sources of quick cash — like advances on credit cards and payday loans — tend to come at a price. Credit cards are well-known for having high-interest rates on average, sometimes upwards of 20 percent. Payday loans are even more expensive. Those short-term loans carry an average interest rate of around 400 percent.
Trying to Maintain an Aspirational Lifestyle
Debt can bring feelings of shame. This can drive people to live as if they’re not in debt, especially for the benefit of appearing like all is well to outsiders. Have you ever said yes to an expense you can’t afford — like dinner out with friends, a holiday gift exchange, a vacation or a luxury car — because you felt it was important to live up to a certain image? If so, consider it a wake-up call. Come up with a spending plan to help you reduce your expenditures and increase how much you’re devoting toward debt repayment.
If your debt has become a problem somewhere along the way, take this as an opportunity to reevaluate your approach to spending and saving so you can get your finances back under control.
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