The thing about debt is that it creeps up on you. There is rarely a lightbulb moment where you realize that you have a debt problem. Usually, it happens gradually, and by the time you acknowledge the issue, it can be too late.
The key to knowing when to take strong action to eliminate debt is to heed the warning signs that may indicate that your debt is cause for concern. Here are 8 warning signs that you have more debt than you can handle. We also advise what to do about it so you can get back on track
1. You only make minimum payments
Consistently making minimum payments is a bad sign. Not only is this making your debt considerably more expensive than it should be, you could be stuck with your debt indefinitely if you don’t manage to chip away at anything other than the interest.
2. Even your minimum payments are difficult to manage
If you get to the end of the month and find yourself running out of money, deciding to skip one payment for this month, you are on a slippery slope. Missing payments, even once or twice, means wasting money on interest costs, late payment charges and penalties.
If you’re carrying more than $10,000 in debt and payments are consistently late because your income just doesn’t go far enough to pay back your debt, look into a formal debt relief program to help you get back on track.
3.You’re being pressured by your creditors
Missing a payment here or there isn’t ideal, but it’s not going to have your creditors up in arms. If, on the other hand, you’re consistently late on your payments you’ll soon run into stressful collection activity from your lenders. Getting collection calls and collection letters is the first step creditors take before taking legal action like issuing a wage garnishment.
4. You rely on debt to pay debt
Sometimes we rely on credit cards and other loans for specific cash flow reasons, like making a large purchase or dealing with an emergency. Short term use of credit cards is expensive, but if you have a plan to pay down your credit card balances you will be OK.
If, however, you find yourself continuously transferring debt from one place to another to stay on top of your payments you need to take stock and create a plan B. Using up all of your home equity to pay off credit cards, or using one credit card to pay off another, might solve the immediate issue of being hounded by your lenders, but it won’t fix the reason why you got there in the first place.
5. You’ve taken out an advance (or two)
Though it can be tempting to rely on credit cards for cash advances, beware: it’s costing you a small fortune to do so. Not only will you pay a high one-time fee for the advance itself, but the interest rate you’ll pay on the amount borrowed begins as soon as you take out the advance. If you already carry credit card debt, this can pile debt on top of debt.
6. You use payday loans
One of the last types of credit heavily indebted consumers rely on to keep everything afloat is payday loans. This is a dangerous cycle that is hard to break especially when the effective rate on payday loans is 390% if the borrowing costs are $15 for every $100.
If you get your first payday loan because you run short before your paycheque arrives, that solves this weeks cashflow problem. But next payday you have to pay back that money plus fees. That means you’ve lost a significant chunk of your next pay to the payday lender which means you are short again. Many people in severe financial difficulty end up owning multiple payday loans to multiple lenders before they seek help from a professional.
7. You can’t get new credit
You have a good credit score so you think you are okay. Not so fast. Even people with a good to moderate credit score can be rejected for a loan because they already carry too much debt relative to their income. And any score below 660 is going to leave you unable to access much in the way of credit other than a secured credit card or high cost payday loan. Any credit you are offered is likely to come with high interest rates. A score between 300-559 is classed as Very Poor, and will seriously limit your access to credit lines. If your score is low the most important thing is not to panic. Bad credit today absolutely does not mean bad credit forever – and you can start acting right away to rebuild your score.
8. Your debt is affecting your health and family life
If you find that your happiness or relationships with others is affected by your money situation, it’s a clear warning sign that you have a problem. In particular, if the thought of someone knowing what shape your finances in makes you nervous, then this is a clear signal you’re in a less than ideal situation and need to make a change.
It’s hard, but being open and honest with your loved ones about the reality of your debt picture is the first step to finding a solution. Often, inviting others into your problem can help you to get a fresh perspective on how to get things back under control. And – it’s true what they say: a problem shared really is a problem halved. And don’t be afraid to talk with a professional debt advisor to explore your options and find a way out of debt once and for all.