Credit is an excellent resource when used moderately and strategically. However, the mindset of paying for today’s expenses over the course of the next few years eventually can catch up with you. A serious debt problem often develops gradually and may even sneak up on you.
When you carry excessive and unmanageable debt, you may not be saving for the future. You likely have a very tight budget and feel financial strain daily. Some people are able to cut back dramatically and pull themselves up slowly and with very hard work. Countless others need a structured plan and even extra help to get back on stable financial ground. These are telltale warning signs of debt that has become unmanageable.
Account Balances Are Steadily Increasing
Reviewing your credit card account statements and other debt statements for the previous six months can be eye-opening. Look at the opening and closing balance for each account. Account balances that are steadily rising indicate that you may be living well above your means and are relying on debt to maintain your lifestyle. This could also indicate that you do not have adequate savings to pay for unexpected expenses and are using debt as your primary rainy-day plan.
One of the most critical dangers of steadily increasing balances is that you will eventually hit your credit limit and will no longer have the ability to pay for these expenses. In addition, increasing credit card balances yield increasing monthly payments. Essentially, your budget is inflating each month as you take on more debt. This is a recipe for financial disaster.
Making Minimum Monthly Payments Is the Norm
While reviewing your account statements, focus on the minimum payment due and the actual payment amount made. If you are making only the minimum payment on all accounts, it may take many long years or several decades to become debt free. The time-frame may be extended if you take on addition debt during this time. If you cannot afford to make larger payments on at least one account to put a dent in your overall debt each month, you may be in over your head.
Monthly Debt Payments Are Huge
Some people think that their debt is manageable because they can afford to make the payments. However, as a general rule, your monthly debt payments should not exceed 20 percent of your take-home income. This includes credit card payments, student loan payments, car loan payments and other debts except your home mortgage or rent. Carrying such a large amount of debt is financially risky because it prevents you from attaining financial security and preparing for the future.
You Frequently Make Late Payments or Barely Make the Due Date
You may assume that your debt situation is not out of control if your credit scores are good or better. Credit bureaus consider a payment late if it is 30 days or more past due. You could theoretically make all of your debt payments a week or two late and still have great credit scores. However, if you are struggling to make payments on time or habitually make payments even a few days late because of insufficient funds, a strategic debt reduction plan may be necessary.
You Rely on Debt to Make Ends Meet
Some people responsibly and strategically use credit cards on everyday purchases to rack up rewards points or to get cash back. These individuals generally pay account balances in full each month rather than carry a balance. If you make everyday purchases because you have no other way to pay for them, your high monthly debt payments may be to blame. You may even make payments for one credit card account with another account, racking up additional interest charges in the process. You do not have an endless line of available credit, so proceeding on this path can be dangerous.
You Do Not Fully Understand Your Financial Situation
As you examine warning signs of debt that may be unmanageable, you may not be certain if these signs apply to you. You may not have a budget or know how to use it properly. Perhaps you do not know how much debt you have or the total minimum monthly debt payments required. If you have a hard time understanding your income and expense situation, you cannot have a reasonable and effective debt reduction strategy. Carrying any debt in this situation can be risky.
You may relate to only one of these signs, or you may be in the unfortunate position of relating to all of them. While it can seem terrifying to admit that you need help with debt, this can actually be a turning point toward a brighter future. Both debt consolidation and debt settlement are effective ways to start moving on along a path toward a secure financial future. Contact Christian Debt Counselors today to take the first step toward a positive change.