Warning Signs of Too Much Debt: How to Know You're in Over Your Head

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Using credit and debt can be a powerful tool that allows you to buy a home, a vehicle, send children to college, and even provide leverage for other purchases, but when you accumulate too much debt, it can pose a serious problem for your finances.

Keeping up with your debt payments is one obstacle. Just because you can afford to fit these payments into your budget, you could still be putting added strain on your finances.

Not only that, but money that's being used to pay down debt can’t be used elsewhere. That means if you’re spending money each month on credit card or other unnecessary debt, you’re taking money away from other areas of your budget that can be used to build wealth and plan for the future.

Wondering if you've got too much debt? Here's how to tell:

10 Warning Signs You Have Too Much Debt

It can be difficult to actually realize when you’ve reached a critical point with your debt situation. If any of these 10 debt warning signs apply to you, it is time to stop and take action to remedy the problem:

  1. You don’t have any savings. If you don't have any money saved, it could be because your debt is keeping you from building up an emergency fund. And not having savings can add to your debt further if you have to turn to a credit card to cover an unexpected expense.
  2. You only make the minimum payment on your credit cards each month. Having too much debt could mean your budget is stretched thin and you're only able to pay the bare minimum payment on your cards each month. Not only can that keep you locked into credit card debt forever, but it can also make your debt more expensive when you're paying steep interest charges every month.
  3. You continue to make more purchases on your credit cards while trying to pay them off. Using your card to rack up new debt while you're trying to pay it down is a good way to get nowhere fast. If you're only paying the minimums, you can't make much progress when you add new purchases to the balance.
  4. You have at least one credit card that is near, at, or over the credit limit. Credit cards have limits and if one or more of your cards is maxed out, that's a red flag that you may have trouble managing your debt. Even worse, having multiple maxed out cards can be damaging to your credit score.
  5. You are occasionally late in making payments on bills, credit cards, or other expenses. Paying late is a symptom that you don't have enough money in your budget to go around because too much of your income is eaten up by credit card payments. Not only that, but late payments can cause your credit score to take a big hit.
  6. You don’t even know how much total debt you actually have. Not knowing how much debt you have is a sign that you might be checked out from your spending. Or, you know there's a debt problem but you're not ready to face up to it.
  7. You use cash advances from your credit cards to pay other bills. Cash advances can help you get money quickly when you need it, but if you're robbing Peter to pay Paul, that's a clear sign that your debt is out of control. Even worse, cash advances come with hefty fees and interest rates.
  8. You bounce checks or overdraw your bank accounts. Bounced checks or frequent overdrafts could suggest that you're not able to manage your debt payments and spending effectively. You're essentially creating more debt for yourself if the bank charges you overdraft or insufficient funds fees to cover the gap in your account.
  9. You’ve been denied credit. Credit card companies and lenders want to lend money to people that they know have a strong likelihood of paying it back. If you're carrying too high a debt load, that could lead to credit denials because lenders might worry about your ability to pay.
  10. You lie to friends or family about your spending and debt. Finally, being reluctant to tell others about your credit or debt situation is a sign that an issue may exist. If you're worried about being shamed or judged for your debt load, your natural inclination may be to keep it to yourself.

Take Action Now to Handle Your Debt Problem

You may be aware that you have a debt problem but sometimes, it's easier to deny it than to address it. If you fall into this group, you're probably still worried about it, despite being in denial. You might be surprised at how much you alleviate your worries once you face up to your situation and begin addressing your debt issues.

Yes, this can be painful and require some hard work, but the sooner you realize that you are in over your head, the sooner you can begin to make positive changes. Meanwhile, delaying changes to your spending and debt habits will only prolong the problem and make it worse.

If you don’t think you can tackle the problem alone, don't let that dissuade you from tackling it altogether: There are people out there willing to help. Consider talking to a nonprofit credit counselor or a financial advisor. They can offer guidance on how to get caught up if you're behind, control spending and create a plan for paying off your debt going forward.

Frequently Asked Questions (FAQs)

How do you calculate your debt-to-income ratio?

Your debt-to-income (DTI) ratio can be a useful way of measuring your debt problem. To calculate your DTI ratio, divide your total monthly debt payments by your total monthly income. The lower the ratio, the more sustainable your debt level. If your DTI ratio is greater than one, then you are not making enough income to cover your debt payments.

What happens to debt when you die?

Different types of debts are handled differently upon the borrower's death. Federal student loans, for example, might be forgiven after the borrower dies. Other forms of debt will be settled during the probate process, perhaps by selling off estate assets. If someone is in severe debt that surpasses the value of their estate when they die, then any debt beyond the estate value may go uncollected.

What is secured debt vs. unsecured debt?

Secured debt is backed up by assets, while unsecured debt is only backed up by the borrower's promise to repay. A car loan is an example of secured debt, because if you default on the loan then the lender can take the car to recoup losses. A mortgage is another form of secured debt. Most credit cards are a form of unsecured debt.

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