Debt Trouble: Know the Warning Signs of Accumulating Too Much Debt
According to financial experts, no more than 36% of an individual’s monthly gross income should go towards debt obligations; however, even that can be a stretch for some people. Still, it is good to have a boundary, a marker for when things might be spinning out of control.
Some experts refer to terms like manageable debt and danger debt to help people understand that not all debt is bad. Manageable debt might include a mortgage or car payment, which are examples of expenses that often require debt to purchase. Alternatively, danger debt refers to expenses that can be deemed frivolous or unnecessary. In most cases, credit card debt falls into the danger debt category.
Despite the general rules and warnings, the amount of debt an individual can handle typically depends on the individual and their comfort level with risks. However, to stay clear of the danger pool, it is best to know the warning signs.
1. Rising Credit Card Balances
Can you afford to pay off your credit card balances every month, or at the very least, stick to an existing payment plan that includes paying above the mandatory minimums? If not, you will begin to notice an increase in credit card balances because of interest and fees.
Additionally, if you find that you are not paying credit cards off but recycling the debt, it might signify that you are too deep in debt. For instance, if you pay the monthly minimum only to turn around and spend the balance, you might be in trouble.
While it is acceptable to use credit cards on predictable monthly expenses, like groceries, maintaining and carrying a balance over several months is costing you more in the long run. It is best to use a credit card as a placeholder, paying off the total balance every month before interest is charged.
2. Needing Multiple Payday Loans To Make Ends Meet
Sometimes, a payday loan is the quickest way to access money during an emergency. There is nothing wrong with using one of these loans occasionally when needed, but relying on one or multiple payday loans every month is a problem, especially when these loans come with astronomical interest rates.
A surefire sign that you are carrying too much debt is when you must rely on payday loans to get through from one paycheck to the next. The problem with these loans is that they only create a larger problem. Many people cannot afford to get out of the payday borrowing cycle once they are in it, meaning they continuously lose money every month trying to keep up with the interest and fees of these loan programs.
3. Tapping Into Savings To Pay Bills
Many people who carry significant debt do not have a savings account. If you still have a savings account, the chances are good that you are not carrying too much debt. However, if you find that you are frequently tapping into your savings to cover monthly expenses, the chances are high that your debt to income is off-kilter.
When your savings account becomes like another checking account, it is time to reassess your finances. You want to find a way to reduce your debt and protect your savings. If you do not act quickly enough, you might deplete your savings and end up living paycheck to paycheck.
Debt is a natural part of life, and most people cannot buy homes or other things without acquiring at least a little. The key is to balance your finances so you never end up in over your head. Do you have any advice for remaining debt-free?