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Debt Problem Signs

Across America, millions of people do not discover that they have a debt problem until it is too late, or until they are looking to finance an important purchase. Consider the following a self-checklist for credit problems:

Over the Limit
Many credit cards charge fees for spending over your credit limit. If all of your credit card balances are greater than 80 percent of your credit limits, consider this a danger signal.

Too Many Cards/Too Much Debt
As a general rule of thumb, you either have too many credit cards or you are carrying too much debt if it seems you cannot pay off your combined credit card debt within one year. Ask yourself when the last time was that you had a zero balance on your credit cards?

Unsure of the Amount Owed
Many people have no idea how much debt they carry on a monthly basis. If you continue using credit cards and are not tracking your spending, your financial situation could get out of control quickly.

Emergencies
It's generally inevitable. Crises and emergency situations happen, and people are sometimes unable to pay for such things as emergency auto repairs or medical expenses because their credit cards are tapped or the majority of their earnings are applied toward debt repayments. It's always important to keep an open line of credit available for such situations.

High Debt-to-Income Ratio
Your debt-to-income ratio measures the amount of debt you have against your income. You can calculate this ratio by dividing your total monthly debt payment (excluding mortgage/rent) by your total monthly gross income (before taxes). For example, $500 in total monthly debt payments divided by $2,000 in monthly gross income results in a debt-to-income ratio of 25 percent. If you have a debt-to-income ratio near or over 20 percent, this is a sign that you may have a debt problem.

Minimum Payments
What many people don't realize about credit card bills is that making only the minimum payment can greatly extend the repayment time period. Making only the minimum payment means you are not applying any significant amount toward the principal. If you're making only the minimum payments on your credit cards every month, you may be overextended and in need of putting together a spending plan.

Balance Transfers
Many creditors offer new credit cards with balance transfers available at low interest rates for an introductory period. It's important to remember, however, that after the introductory period the interest rates typically skyrocket to 19 percent or more. Additionally, an increasing number of credit cards are charging fees for transferring balances. If you keep switching credit card balances, you may have a problem managing your finances.

Skipping Payments
Are you late paying your mortgage, rent, car loan, or utility bills more than once per year? If you juggle bills and skip payments, this is a definite sign that you have a debt problem.

Borrowing Money
If friends and relatives are constantly giving you money and still find yourself short on your bills, credit counseling can help you learn how to budget or put you on a plan for paying off your debts. If you refinance your debts before they're paid off, you'll likely be subject to administrative fees and higher interest rates from lenders.

If you have questions about Debt Problem signs, please contact us.

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