No matter what your debt levels, making minimum payments is a problem. Even if your debt isn’t that large, you could spend decades paying it off if you only pay the minimum required monthly payment.
If you add up all of the minimum monthly payments toward your revolving debts—that’s credit cards, not auto and home loans—and that minimum required monthly payment is 20% of your income or larger, you have too much debt. Exceeding 15-20% of your income risks not enough income to cover your housing, food transportation, and other necessities.
Debt collectors calling or creditors threatening you with things like wage garnishment or repossession are signs of a debt problem. This may seem obvious, but some people reason that they’re just forgetful, and they have enough money to make their payments. Even if money isn’t an issue, missing payments is a problem! Debt problems include more than just insufficient funds—if you’re not organized enough to make your payments on time before you get sent to collections, you have a debt problem, regardless of your financial situation.
If you’re transferring balances from one card to another to stay afloat, or refinancing your house to pay down revolving debts, you have a debt problem. It might seem like a good idea to use refinanced home equity to pay down credit card balances; mortgage debt carries a much lower interest rate after all. But in our long experience, using home equity to pay off credit cards has a high potential to end in disaster. For one thing, the consequences of not paying a home loan payment are much worse than missing credit card payments. The other problem is that you won’t have addressed the root causes of your credit card debt. By spending all of your home equity on paying off other debts, you wipe the slate clean and leave yourself in a position to take on even more debt. And there won’t be home equity next time you find yourself in over your head.
The worst way to use a credit card is to get a cash advance. Not only is the money loaned to you at the worst possible terms, there are also very high one time charges, either a flat rate or a percentage of the amount. A $1,000.00 cash advance could have a one-time fee of $50.00, plus interest for any unpaid balances. If you find yourself using cash advances for regular bills and expenses, you have a debt problem.
If you are turned down for a loan or credit card or if you can only get a loan under very poor terms, stop and re-examine your situation. If your excessive debt levels lead a lender to deny or extend further credit to you, you probably have a debt problem.
Every month, you should be putting money into savings. Build an emergency fund, save for retirement, save toward home ownership or your kids’ college. If your budget does not include a savings plan, start right now. If you simply can’t because there’s not enough money left over after paying your bills, you may have a debt problem, if your savings are decreasing instead of increasing or if you’re dipping into your retirement to stay afloat—then you have a debt problem.
Do you know exactly how much debt you have and what it will it take to be completely debt free? If you have more than one credit card, do you know how much you owe toward each one and have a plan to pay off the entire balances? If you don’t have ready answers to these questions, you have a debt problem. Again, even if you have plenty of money, not being on top of your debt situation is a problem in itself. And if you’re going out of your way to avoid opening your credit card bills because you don’t want to see how bad things are, then you already know you have a debt problem, and it’s time to do something about it.
If you have a card that is maxed out or near its limit, that’s a problem. If you have to try more than one card at the register until one of them is accepted, then it’s time to stop borrowing and take stock of your situation. Also update your budget to make sure you have a plan to get everything paid off.
Do you actively keep your partner in the dark about the household debt situation? Are you routinely borrowing money from friends and family to make ends meet? Are you nervous about what would happen if anyone you know were to see your credit card statements? Lying or hiding financial information from your loved ones is a strong sign of a debt problem.
There are plenty of other warning signs with regard to financial troubles; the ten listed here focus specifically on debt. If you are struggling with debt, or showing any of these warning signs, WE CAN HELP. It doesn’t matter if it’s credit card debt or some other financial obligation—our financial counselors can help you create a budget and come up with a workable plan to address your debt situation. Call 712-252-1861 ext. 47 for more information or to set up an appointment!