Recognizing Debt Problems
Most people have debt. However, it’s important that people learn to tell the difference between manageable debt and serious debt problems. If a person gets into too much debt, he or she could find that it’s no longer possible to make the required payments.
Do you have too much debt?
How much debt is considered “too much” will be different for each person. Each financial situation is unique and what could be considered serious debt problems for one person might be fine for someone else. So how do you know if you have too much debt? Here are a few warning signs:
- You struggle to pay your debts and expenses each month
- You can only make the minimum payments on your debt
- Repaying your debt is causing you stress
- You hide your debt from loved ones
- You’ve received calls from creditors or collection agencies
- You need to use one credit card to repay the debts on your other cards
- You have missed payments or made payments late
- You have to take out new loans in order to afford to repay your current debts
- You don’t have a budget or can’t stick to a budget
- You don’t know how much debt you have
- You regularly use pay day loans
While the actual numbers will depend on your particular financial situation, the overall picture looks the same for many people who have debt problems. The warning signs above generally indicate a problem. If you experience more than one of those warning signs, you likely have too much debt. While you may be able to handle your finances right now, this may not continue to be the case. Having a high level of debt means that you don’t have very much financial flexibility. If an unexpected situation were to come up (such as a sudden repair bill, a job loss or similar situation) you would not be able to manage your finances and would likely need to take out more debt in order to handle these new circumstances. This could result in you borrowing more than you can afford to pay back.
Knowing your Debt
It’s important that you know your debt. What does this mean? It means that you’ll want to make sure that you fully understand all of the debts that you have. This sounds simple, but the reality is that many people don’t know how much they owe, when they need to make payments and how much interest they are paying on their debt. Failing to understand these details leads to debt problems. For example, if you’re not sure how much interest you are paying, you could be managing your debt inefficiently. This is because paying down the debts with the highest interest rates first is often considered a good way to pay down debt. This makes sense. If you get rid of the debt that is the costliest to have, you’ll end up paying less overall. You’ll also want to know the particulars of your debt because this information will keep you from borrowing more than you can afford. You may think that lenders won’t lend you more money than you can afford to pay back, but this isn’t necessarily true. Write down all of the debt that you have. Does repaying these debts fit into your overall budget? If you’re in a good financial position, you will be able to handle your debt repayment costs while still being able to afford your other expenses. If you can’t fit these costs into your budget, is there anywhere where you can make cuts?
When to Get Help
If you have made cuts to your expenses and you’re still unable to afford to repay your debts, you may wish to get help from a professional. A good person to speak to is a licensed insolvency trustee. Don’t let the name scare you. Speaking with a trustee doesn’t automatically mean that you’ll find yourself filing for bankruptcy. A licensed insolvency trustee is a trained and licensed professional who can review your financial situation and provide you with information on the available debt relief options. If you are having debt problems and not sure what you can do to improve your situation, speaking with a trustee is a good idea. Most licensed insolvency trustees offer the initial consultation at no charge.