If you’re in debt in the US, you’re in good company.
At the end of 2019, American household debt surged past $14 trillion (yep, that’s TRILLION with a “T”) for the first time. Most of this debt is in the form of mortgages, but credit card debt also hit a record high of $930 billion.
But while you can take solace in the fact that you’re not alone, don’t take this to mean you’re not responsible – or that there’s nothing you can do to turn the tide. The first step, though, is recognizing your debt problem. Start by checking your financial house for these nine signs.
1. Denied Credit
If you have been turned down for new credit or higher balance limits on existing cards, you might have a debt problem. Too much debt scares potential lenders because they doubt your ability to pay them back, and this leads to application denials.
2. Overspending
In short, you need to have more money coming in than going out. If you’re unable to trim your expenses to fit within your earnings, you’ll never be able to create a budget that balances and is realistic for your situation.
3. High DTI
If you’re into numbers, you can calculate your debt trouble with an impartial equation.
Add all of your monthly debt payments (credit cards, car payments, personal loans, mortgage or rent, etc), and divide that total by your monthly income, then multiply by 100. This is your debt-to-income ratio (DTI), which lenders use to determine the likelihood that you’ll be able to repay a loan. While it all depends on your situation, a DTI up to 35% is considered healthy – if yours is higher, you could face credit difficulties.
4. Maxed-Out Credit Cards
Sure, we can all fall victim to carrying a high credit card balance after, say, a major purchase or an unforeseen expense. But consistently maxing out one or more cards is a clear indication of debt management trouble.
5. Minimum Payments Only
Keep in mind that your minimum payment is just that: the absolute minimum payment you can make. Unfortunately, it’s designed to extract the maximum interest rate from you over time. If you’re only making minimum payments out of necessity, because you’re unable to pay any more, your debt trouble will only compound.
6. Missed Payments
Do you regularly make late payments? Do you scramble to make even partial payments? Do you bounce checks often or rely on overdraft protection? All of these are signs that you have a debt problem – and they are also causes of poor credit.
7. Using Cash Advances
Do you routinely tap into your credit card for cash advances? This is a risky proposition that clearly indicates a debt problem. The problem with these advances is that the interest rates on any unpaid balances are very high – and that’s on top of the upfront fee, which hovers around $50 on a $1,000 advance.
8. No Emergency Fund
Experts recommend building up a “safety net” savings account that contains enough to cover at least three to six months’ worth of expenses in case of an emergency. If you’re putting all your “extra” money toward debt instead of an emergency fund, you need to find a way to better manage your debt.
9. Avoidance
Sometimes it’s all too much: You’ve let the bills pile up, and now you ignore them because you can’t cover them all. You honestly have no idea how much you owe to each lender, let alone your total debt. If you’re avoiding your financial condition, you most certainly have a debt problem. Don’t wait until debt collectors begin to hound you before finding a debt management program.
If your financial house needs a good cleaning, but you just don’t know which dirt to attack first, let the team at DebtGuru.com help you get started. Contact us today, and one of our dedicated experts will walk you through a debt management program that fits your unique financial situation.