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
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
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.
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.
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.
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.
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.
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.
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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