CreditShack.org

Think of debt as a cancer of the wallet. Just like cancer, debt starts out small and spreads. Debt begins quite innocently – an extra Christmas present here, a car repair bill there – and continues to grow, unchecked. Debt creeps unnoticed into even the healthiest of finances. All too often, people don’t realize they have a debt problem until it’s too late. Thankfully debt can be treated if caught early enough. Almost all debt troubles can be eliminated through self-help and determination. However, the first step to heal debt overload is to recognize that you have a problem.

How do I know if I have a debt problem?

Not only can debt accumulate unnoticed, but also it’s far too easy to rationalize debt. Why worry about the cost of something when you can just put it on a credit card? Why worry about debt if you can make the minimum payments? A little debt never hurt anyone. Wrong!

When it comes to debt obligations, many people are in a state of denial. Are you or a loved one living in denial of a debt problem? Here are eight warning signals that you are headed toward a debt crisis:

• You only pay the minimum payment. Paying on the minimum payment on your credit cards guarantees you years of slavery to your credit card company. Credit card companies designed the minimum payment to suck as much money out of you as possible, plain and simple. If you only make the minimum payments on all of your credit cards, you have a debt problem.
• Your credit limit is maxed out, or you have no idea what your credit card balances are. If your credit card balances are near the credit limit or you have no idea how much you owe, you may have debt issues. Remember, awareness is critical to solving debt dilemmas.
• You have no savings. Experts generally agree that you should place three to six months of living expenses in a savings account to cushion you from unexpected large expenses and temporary unemployment. Although having less than three months of expenses in savings does not mean you have a debt problem, the less savings you have, the more likely you are in debt.
• You must use your credit card for everything. Are you forced to use your credit card for all your purchases because you don’t have enough cash in the bank to cover your expenses? It’s fine if you choose to use your credit card for all your purchases (i.e. to take advantage of rewards offer and pay your balance in full every month). However, if you must pay with the plastic because you can’t afford it otherwise, you may have a debt problem.
• You use payday short-term loan services or frequently take out cash advances from your credit card. If you are struggling from paycheck to paycheck and must use payday loan services, you have a debt problem. Payday loans charge extraordinarily high interest rates, and only exacerbate your financial problems. Paying $150 for a $100 payday loan only digs you into a deeper financial hole. Similarly, frequent credit card cash advances signal potential debt trouble. Credit card companies charge higher interest rates for cash advances than purchases this very reason.
• Your creditors call or write to you about unpaid balances. If you cannot pay all your bills, you certainly have a debt problem. Debt collectors usually call only when accounts are seriously in default.
• Your credit card balances exceed 10% of your income. Although some lenders may consider credit card debt to income ratios above 10% as healthy, we believe that credit card debt should never exceed 10% of your annual income.
• You hide your credit card statements from your family or spouse, or you lay awake at night worrying about debt.

If you feel any of these warning signals describe you, you should immediately take steps to remedy your debt. If you are suffering from debt, you need to stop using your credit cards, pay as much as you can possibly squeeze together toward your balances, and establish a savings account for emergencies. You may want to consider seeking professional help from a qualified financial advisor.