How Do You Know if You Have Too Much Debt?
Most people have some debt. Whether you’re borrowing to buy a house or a car, using a line of credit to afford renovations, or using a credit card for a big purchase, debt is necessary for most of us. When debt levels are kept under control, having some debt may not be an issue. However, if you have too much debt, it can quickly become a serious problem.
It’s very easy to be overwhelmed by debt but resolving debt problems can be much more difficult.
So how do you know if you have too much debt? Each person’s financial situation is different, but here are some signs that you may have borrowed more than you can handle.
You Can Only Make Minimum Payments
When you have a balance on something like a credit card, your monthly bill will have a minimum balance owing on it. If you pay this amount, the creditor will be happy, but you’ll be charged a significant amount of interest. Paying only the minimum payment will also likely mean that you’ll be in debt for a very long time.
You should always try to pay more than the minimum. If you’re in a position where you can’t afford to make more than the minimum payment, you likely have too much debt.
You’re Borrowing Money or Using Balance Transfers to Stay Afloat
Sometimes people transfer the balance owing from one debt to another (such as from one credit card to another credit card). This can be a way to reduce the amount of interest you’re paying (if you transfer the amount to a card with a lower interest rate, for instance). However, if you’re using this strategy to avoid missing payments, then you are likely in debt trouble.
You Have Nothing Saved for Emergencies
Saving for emergencies is important. You never know what’s going to happen and, if you don’t have money saved for when an unexpected expense comes up, you’ll need to take on additional debt to pay for it.
If you’re spending all of your money each month, leaving you with no emergency savings, you may have too much debt.
You’re Reaching your Credit Limit
If one or more of your credit cards is maxed out, or close to being maxed out, there’s a good chance that you have too much debt. The same is true if you find yourself applying for new credit because you frequently don’t have enough credit available to handle your expenses.
You’re Getting Calls from Creditors or Collection Agents
If you’re missing payments or forgetting to make payments because you can’t remember what you owe, this could be a sign that you have too much debt. If you’re missing payments because you can’t afford to make them, this is almost certainly a sign.
Once you miss a couple payments in a row, or if you start missing payments regularly, you might start getting calls from creditors or collection agents. If this happens, you could be doing significant damage to your credit score and you could even possibly face legal action.
Collection agents can be quite persistent as well, which can get difficult. Unfortunately, these calls can even sometimes be harassing, so you’ll want to avoid being in this situation if at all possible.
How to Solve Debt Problems
The first step to solving debt problems is to understand your debt situation. Many people don’t realize they have an issue – or how serious the issue is – until they sit down and really look at their financial situation.
Figure out how much you owe, who you owe it to, and how much interest is being charged on your debt. This will help you come up with a strategy for reducing your debt. You may want to focus on paying off the debt with the highest interest rate first, since this debt is costing you the most money.
You will likely need to make cuts to the rest of your budget so you can focus on paying off debt. Look for places where you can cut – even temporarily – to make debt repayment possible. It may be difficult to live on a reduced budget, but it will be worth it to eliminate your debt.
If you have too much debt and you simply can’t meet your financial commitments, speaking with a Licensed Insolvency Trustee can help. Most trustees offer free consultations.