For many, paying down debt seems like an impossible task. You spend nearly all of you weekly paycheck paying bills, having barely anything left over, and yet it seems like the balances you owe don’t even budge. Trying to keep ahead of debt can be extremely difficult and sometimes feels impossible. If you’re one of the many who cannot keep up, it’s possible that you have too much debt and not enough money to pay it off.
Here are five signs that your debt has gotten out of control:
You can’t afford to pay your bills. This is kind of obvious, but if your take-home pay is less than the amount you owe on your bills, you have too much debt. Paying your bills late will lead to your creditors tacking on late fees or increasing your interest rates, leaving your even further in the hole. You face a similar problem when paying only the minimums on your credit card bills: carrying a balance on your cards every month only adds more interest. If you experience both an interest rate increase and a late fee in one month, your balance could actually grow, not shrink.
You have nothing in savings. Paying your bills every month wipes out your paycheck, leaving little to nothing to put in savings. A non-existent savings account can be nerve-wracking because it means you have no cushion in place for financial emergencies, or even for things like vacations or other fun purchases. Lacking a savings account is akin to throwing gasoline on a fire: if you cannot afford to cover unforeseen emergencies, your financial situation could explode and throw you even further into debt. It may be time to reevaluate your situation to some up with a plan that allows you to pay monthly bills while still reserving something each month for life’s unexpected financial challenges.
You are denied new credit. When you apply for a new credit card, auto loan, or mortgage, banks will review your financial situation. Creditors want to know that they are giving money to someone who can handle taking on the new monthly payments, so they will look at your debt-to-income ratio and base your creditworthiness on that number. Banks will choose a certain percentage to base this decision on; for example, a bank may use 36%, which means the current debt you owe should only be about 36% of your current gross income. If your debt is higher than your income can handle, your request for credit may be denied.
You have no plans to pay off your debt. The stress of debt is weighing on you, curbing your appetite, causing you to lose sleep, and making you unpleasant to be around. You’re desperate to better your situation but you have no real idea how you’re going to do it. It can be overwhelming to think about a payoff plan, especially if you live paycheck to paycheck, but it’s a crucial part of the process of getting yourself out of debt. Being able to put extra cash towards a bill, even if it seems like a paltry amount, will do more good than harm. If you’re stretched way too tight to even squeeze out these extra few dollars, consider other earning options, like getting a part-time job to supplement your income or using tax refund money to relieve some debt.
You live on your credit cards. It doesn’t make sense to spend all your money paying the minimum payments on your credit cards if you have to turn around and use these cards every month to buy your necessities. Having credit cards can be helpful when you’re trying to establish credit, but if you rely on them too much, the interest rates will start to crumble any financial foothold you’ve established. It’s best to stop using the cards and just start paying them down. You could also look into transferring balances to new cards with introductory low interest rates so you can chisel away at the principal balance. Talking to a consumer credit counselor about debt management plans is another avenue to explore.
If your situation resembles one or more of the scenarios above, don’t despair. At Luftman, Heck & Associates, our bankruptcy attorneys speak to people like you every day who need help turning their financial situations around. We have years of experience helping consumers get themselves out of debt. If you have questions about your situation, call us (216) 586-6600 or email us at firstname.lastname@example.org.