Debt isn’t automatically a dirty word. Most Americans carry debt, and for many good reasons. Responsibly taking on debt and paying it off on time is an excellent way to build credit. Certain types of debt also help us achieve our goals, like financing an education or getting the keys to our dream home. In some regards, it’s useful to think of debt as a handy tool in your larger personal finance toolkit.
But left unchecked, debt can become dangerous. It’s easy to start falling behind on payments, accumulating late fees and interest as you go. Furthermore, certain kinds of debt carry a certain amount of risk from the get-go, like lines of credit with high interest rates, or auto loans for a vehicle that’s going to depreciate in value substantially the second you drive off the dealership lot. Suddenly, that tool you meant to use constructively becomes a weapon aimed directly at your financial well-being.
Here are six telltale signs your debt has gotten out of control, plus some solutions meant to help you get back on course.
Sign #1: You’ll “Figure It Out Next Month”
It’s very easy to put off dealing with debt for another day… week… month… and suddenly you’re much farther behind than you ever meant to be. If you’ve noticed yourself procrastinating, it’s time for a reality check. Commit to making time to sit down, go over your debts and come up with a strategy sooner rather than later.
Sign #2: You’ve Lied About/Hidden Your Debt
There are many reasons people feel hesitant to admit the reality of their debt to others. Carrying debt can feel embarrassing or shameful. Many Americans feel pressure to “keep up with the Joneses” too.
But if you find yourself directly lying to a loved one about the existence of debt or the amount you’re carrying, it’s a sign the situation has gone too far. This is especially true if you’re lying to a romantic partner, business partner or someone else affected by your finances.
Sign #3: You’re Missing Minimum Payments
Most lines of credit offer borrowers the option to repay a minimum amount each month, either a low flat fee or a small percentage of the total outstanding balance. The upside is that doing so will keep late fees at bay. The downside is that paying only the minimum does nothing to stop interest from building. If you’re consistently missing even this minimum requirement, it’s time to take action.
Sign #4: Credit Cards Are Your Emergency Fund
Emergencies are often unfair, but they happen to the best of us. Without a sufficient emergency fund tucked away, people fall back on credit cards to cover unexpected costs.
Does this sound like you? It’s a very common situation in America. Many people who eventually decided to try an elimination strategy like debt settlement describe falling thousands into debt after an unexpected life event like a divorce, death in the family, layoff, medical incident, etc. Dozens upon dozens of Freedom Debt Relief reviews cite having to put emergency expenses on credit as one contributing factor to overwhelming debt, which is why these consumers eventually decided to seek assistance through debt settlement.
Although we can’t stop these costly events from happening, we can do our best to prepare ahead of time and proactively get out of debt after the fact.
Sign #5: It’s Hard to Keep Your Debts Organized
Starting to lose track of how much you owe and to whom? This is a classic indicator you’re getting in over your head. Disorganization makes it all too easy for debts to slip through the cracks, worsening your financial woes.
A system for organization is a must, as is addressing debts as they come rather than letting the statements sit unopened until they’re past due. Staying in denial can be tempting, but it’ll only prolong the process.
Sign #6: Your Debt-to-Income Ratio Is High
Here’s how to find your debt-to-income ratio: Divide all your monthly debt payments by your gross monthly income. A high ratio makes you risky in the eyes of lenders; if your ratio exceeds 43 percent, you’ll have a tougher time getting a mortgage. Many experts recommend keeping your DTI below 36 percent. If you crunch the numbers and find that your DTI is high, it’s important to keep lowering your debts.
Has your debt gotten out of control? If any of these six signs apply to you, it’s time to explore your options for reducing and eliminating the amount you owe.
