If you're not sure if you have a debt problem, Laura breaks down 13 warning signs you should know. You’ll learn red flags to watch out for that could prevent you from building wealth and solutions to turn around your financial life.
4. You can only make minimum payments on cards.
If you’re stuck in a cycle of only paying the minimum on credit cards each month, that indicates you have a debt problem. As interest accrues, you could end up paying double or triple the original cost of the items charged on the card.
For example, let’s say you have a $5,000 card balance with an 18% annual percentage rate (APR) and a $100 minimum payment. If you only pay the minimum, it will take you over 30 years to eliminate the balance!
But if you pay $250 per month, you’d pay off the balance in under nine years. And paying $500 would allow you to eliminate the debt in just over four years.
These pay-off time frames assume that you don’t increase credit card balances with any additional charges. So, make a plan to stop making new charges and to pay as much as possible on credit cards each month to get out of debt as quickly as possible.
5. Your credit cards are maxed out.
If you’re using credit cards to satisfy a shopping habit or to buy necessities during a financial rough patch, you’ll eventually hit your credit limit. You may be charged additional over-limit fees if purchases exceed your credit limit.
Even if you can pay more than the minimum payment each month, having a maxed out card causes your credit utilization ratio to skyrocket, which kills your credit scores. If you’re consistently using more than 20% to 30% of your credit lines, you probably have a debt problem that needs to be reined in.
If you’re living beyond your means and financing a lifestyle that you can’t afford, it’s time to create a realistic spending plan and take control of your finances.
See also: 6 Ways to Pay Off Credit Card Debt
6. You can’t pay bills on time.
If you’re not paying bills on time, it could be because you’re extremely unorganized. But it’s more likely that your debt payments are more than you can afford to pay each month.
Ignoring bills may make you feel better in the short term, but I promise that they’ll come back to bite you in the form of late fees and bad credit. Paying late only makes a debt problem worse.
Contact your creditors to discuss any financial hardship and ask for their help. You may be able to work out a payment plan to get caught up with past-due balances or have late fees waived.
7. You’ve borrowed to pay your bills.
If you have to borrow money from friends or family or take cash advances on credit cards, you certainly have a debt problem. Getting cash from a credit card is the worst way to use it because you’re charged a higher interest rate than for regular purchases. Additionally, you usually get hit with a cash advance fee.
Eventually, you’ll run out of places to borrow and you’ll have to face the balances you’ve racked up. So, make a plan now to reduce your expenses and increase your income sources so you live within your means without having to borrow from loved ones or expensive creditors.