Most people are aware of their financial struggles. Many are familiar with not being able to pay their bills on time. Maybe you only have enough cash for bare necessities and rarely for luxuries, or you keep relying on credit cards to make it to the next payday.
Although problems with money can feel obvious, debt problems are more challenging to identify. Here are five urgent warning signs that indicate you may be reaching a crisis with debt – plus, a few insights on how to address your debt issues.
5 Red Flags of a Debt Problem
It’s hard to diagnose a debt problem because virtually everyone has debt. Many individuals are paying off their mortgage, car, student loans, and more.
If debt is so common, then what’s the issue?
You see, a debt problem goes beyond not having enough money. It has roots in poor financial habits and values. Without addressing those roots, you can be trapped in a vicious debt cycle that’s very difficult to break out of.
The keyword here is “difficult.” While it can be hard to get rid of debt, it’s definitely not impossible.
The initial step is to recognize that you have a debt problem in the first place. Keep an eye out for these warning signs:
1. You can only afford minimum payments.
Lower payments seem great on the surface because they’re affordable. However, minimum payments are designed to keep you longer in debt. By only chipping away at what you owe, you barely make a dent at the principal while racking up more interest.
No matter how big your debt is, making minimum payments is a major mistake. Even if you only have a little, it can take decades to pay off as long as you only pay the required monthly minimum. It’s so much worse for larger debts.
- What You Can Do:
Never miss your due dates by setting up automatic payments. Every month, set aside money to pay more than the minimum. But sometimes, minimum payments are simply all you can afford. In this case, try looking for a side gig to get extra income, and dedicate it exclusively to paying off your debt.
2. You depend on cash advances.
Getting a cash advance is one of the worst ways you can use your credit card. Not only are you forced to accept lousy loan terms, but they typically charge you a high one-time flat rate or a percentage of the amount you’re getting.
For instance, you may have to pay a one-time fee of $50 for a cash advance of $1,000. Add the sky-high interest for unpaid balances – and you’re likely to miss a payment if you don’t have money, which is why you need a cash advance in the first place – and you’re now deeper in debt.
- What You Can Do:
It’s simple: never get a cash advance unless it’s a severe emergency. Using it for regular expenses and bills is a massive red flag of a problem. If you already have a loan, prioritize paying it off to avoid wasting money on drastically high-interest fees.
Aside from not getting a cash advance in the first place, start saving for an emergency fund the moment you’re able. This way, you have a safety net to pay unplanned bills and emergencies
3. Your credit cards frequently get declined.
Are most or all of your cards near their limit or maxed out? Do you usually have to swipe more than one card at the register, hoping the transaction comes through? This is one of the most apparent indicators of a serious debt problem.
Credit card debt is one of the most common reasons why people file for bankruptcy. If you’re unable to keep your credit card balance at manageable levels, you’re setting yourself up for a debt trap.
- What You Can Do:
Credit cards are useful for building your credit and paying for daily expenses, but only if you can regularly settle the balance. If you already have a ton of credit card debt, it’s time to stop using them.
Do everything you can, such as following a stricter budget or getting a second job to help you pay down your existing balance first.
4. You keep getting denied for credit cards and loans.
Waiting for approval for a new loan is nerve-racking. Once you start getting rejected for credit cards and loans – or can only get one under very disadvantageous terms – it’s time to reassess your situation.
Excessive debt levels are a big warning sign to banks and lenders. If you keep getting denied for new loans or credit extension, it means they think you cannot afford to pay off your debt.
- What You Can Do:
Is there outdated or incorrect information on your credit reports? Update them ASAP. Then, stop yourself from taking out new loans. Focus on paying down your balances. This way, you get to improve your debt-to-income ratio, which is a critical element of being credit-worthy.
5. You’re trying to avoid debt collectors all the time.
If you’re frequently trying to field calls from debt collectors or your mailbox is always stuffed with letters, you may have much more debt than you can handle.
Debt collection efforts aren’t just annoying. They can steal your peace of mind with threats about repossession, wage garnishment, and other collection methods short of outright harassment. This is a sure sign of a debt problem.
- What You Can Do:
The most effective way to keep creditors and debt collectors at bay are to pay off your outstanding debt. However, your current financial situation may not allow this yet. Consider talking to debt collectors to renegotiate your debt payment plan.
If you’re not comfortable doing so, you may also seek assistance from a professional credit counselor so you can explore your debt repayment options.
It’s Never Too Late to Fix Your Debt Problems – But You Have to Start Now
If you are showing any of these warning signs, take stock of your financial situation immediately. You DIY this, but you can also seek help from financial advisors to come up with a workable plan to address what you owe. It’s never too late, but you should begin now so you can start enjoying a debt-free life earlier than later.
