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6 Signs That You’re Carrying Too Much Debt

Many financial experts report that the average household carries at least $10,000 in credit card debt. In addition to this debt, many people take out upside down car loans and overextend themselves on home purchases. While debt is generally an unfortunate part of life, if you decide to buy a house or car, it shouldn’t be an excuse to rack up huge credit card bills or take out unnecessary loans.

Taking control of your debt involves acknowledging any problems you may have: Do you view debt as a way of life? Do you readily take out loans to finance big purchases, such as flat screen televisions, appliances, and other electronics? If so, this can indicate an underlying debt problem. However, the sooner you recognize the tell-tale signs, the sooner you can take steps to modify your spending.

Signs of Too Much Debt

1. All Your Money Goes Toward Debt
Take a minute to calculate how much you spend on debt payments each week. Pull out your credit card statements and other financial reports, tally your minimum debt payments, and then compare this figure to your monthly income. In a perfect world, debt payments should not exceed 36% of your gross monthly income. But if you’re spending 50% or more on debt payments each month, it’s time to make some financial adjustments.

Working simply to pay off your debt is exhausting and can lead to burnout. While you can’t do anything to get rid of credit card debt overnight, you can take steps to eliminate other debts. For example, you can rent a cheaper apartment, or get a roommate to lower your expenses. There’s also the option of selling your car and lowering your car payment. Do you have a timeshare? If so, consider letting the property go to reduce your debt payments.

2. You Can Only Afford Minimum Payments
If you can barely afford the minimum payment on your credit cards, you’re likely carrying too much debt. Get on the phone and plead with the credit card companies to lower your interest rates. If you’ve paid on time and you have a good history with the creditor, the company will likely work with you.

Otherwise, transfer balances to a card with a low introductory offer rate. In this scenario, it’s ideal to pay off your debt – or as much of it as you can – during the intro APR period before it adjust to the higher standard APR. While a rate decrease will lower your current minimum payment, if you continue to pay the original minimum, you’ll decrease the debt faster.

3. You Suffer Physical Side Effects
Too much debt often results in credit cards that are nearly maxed out. Furthermore, creditors can repeatedly call your home phone or cellphone if you’re behind on payments. The stress of not being able to keep up with payments can affect your sleep routine, happiness, appetite, and anxiety level. If you’re constantly thinking about your debt – or being reminded of your debt with collection calls – you’re probably carrying too much.

4. You Have Been Denied for New Credit
The amount of debt you owe affects your credit score. The more debt you carry, the harder it is to get new credit. Your streak of credit approvals can quickly come to an end as lenders and creditors review your applications and decide that you’re overextended.

Creditors and lenders send rejection letters after turning down credit applications, and these letters often explain the reasons behind a rejection. Common reasons include a low credit score, no credit history, high balances, and, sometimes, too much credit.

5. There Is Nothing in Your Savings Account
A comfortable nest egg is a sign of good personal finance management. This provides income after a job loss and cash for other emergencies. However, if you’re spending all your money on debt payments, there’s probably little left for savings.

Earning additional income from a side job or a pay increase doesn’t have to preclude buying a bigger home or a better car. Take a look at your personal savings accounts: How much do you have in liquid funds? Do you have at least six month’s income in a cash reserve? Lack of a savings account can indicate a huge problem – especially if you’re constantly shopping and accumulating new creditors.

6. You Pay Your Bills Late
When you’re carrying too much debt, it can be hard to keep up with your monthly payments. You can forget about creditors and due dates altogether, or send late payments. Owing too much can hurt your credit score, and if you begin sending late payments, your score takes another major hit.

Final Word

Once you recognize a possible debt problem, the next step is to devise a debt elimination plan. You need disposable income to tackle debt – which can be hard to come by. Options to generate extra income include selling your belongings online and putting the proceeds toward debt. You can apply for a temporary part-time job, or discuss debt settlement with your creditors. Debt settlement companies and bankruptcy are other options that should be explored only as a last resort.

What other factors do you think point to a debt problem?

Valencia Higuera is a personal finance junkie who enjoys reading articles on budgeting, saving money, and credit cards. She has written personal finance articles and blogs for several online publications. She holds a B.A in English from Old Dominion University and currently lives in Chesapeake, Virginia.