- Warning signs of excessive debt can alert you to larger financial problems.
- Taking action to pay down debt early can prevent severe financial consequences.
- Professional debt relief agencies can help if you are uncertain about the best course of action.
Temptations to finance purchases are everywhere. You can finance virtually anything through an instant approval process, from email offers to enticing invitations at online checkouts. Provide a few pieces of information and pay the bill over time.
Credit can become a tool for upward mobility when budgeting for major expenses like a home, car, or college education. The problem is that every click, accepting an irresistible offer, comes with a cost. Financing a purchase may include set-up fees and finance charges, increasing the price of the product or service.It also has the indirect cost of diverting money you earn tomorrow for purchases you make today.
When overused, debt can strangle your finances and lead to financial insecurity.
The question then becomes, how much debt is too much? The following five signs indicate that you have more obligations than you can effectively manage.
Recent Late Payments or Calls From Bill Collectors
Paying bills by the due date is one way to gauge financial soundness. Late payments are an indication that you do not have enough money to manage your current bills and should be a warning sign you never ignore.
The consequences range from collection calls to negative marks on your credit file. Falling further behind can have more serious consequences. In some cases, creditors can take property or garnish your wages to collect the debt.
Any indication of financial struggle is a red flag to creditors. It can result in punitive responses such as higher interest rates or lower credit limits, making it even harder to pay off existing balances.
Practicing Financial Gymnastics
When money gets tight, you begin looking for creative ways to keep up with the bills. One common strategy is paying one bill late while catching up on another. For instance, you may let the electric bill go unpaid so you can make the minimum payment on one or more credit card bills. Then you charge the power bill to the credit card before the disconnect date to stay afloat.
These strategies may seem clever and could get you through in a pinch. However, regularly charging essentials while making the minimum payment on credit card debt is a clear sign that you have borrowed too much.
Failing to Track and Manage Existing Debt
Credit card purchases and point of sale financing encourage you to use credit for small everyday purchases. Over the course of a month, these small expenses can add up to hundreds (and in some cases) thousands of dollars.
Financing small purchases on high-interest credit cards can be challenging to manage. Credit card issuers charge double-digit interest while requiring a minimum payment that barely covers the interest charges, leaving you perpetually in debt. You can spend more than you earn without knowing it when you finance everyday purchases.
To prevent overspending, put a system in place to track expenses and ensure you can pay off the account balance when the bill comes due.
Having Little Or No Savings
While paying down balances on high-interest credit card debt could feel like the highest financial priority, having little or no savings can also indicate financial distress. Any unexpected expense increases your debt when you have nothing in the bank.
Needing Credit to Pay for Essentials
When credit card balances increase monthly, it is a sign of overspending. Charging essentials like food, utilities, or transportation costs becomes a warning sign if you cannot afford to pay the total balance at the end of the month.
Final Thoughts
If you are experiencing one or more of these warning signs, it is an indication that you currently have too much debt. It Is time to take action.Start by tracking expenses and income for 30 days to determine the gap in income and spending. Then look for ways to reduce costs or increase earnings.
If you still cannot balance your budget, it might be time to get help from a professional agency that can help you get your finances back on track.
We can often renegotiate debt contracts, allowing you to pay less than the total amount owed.
