No one has ever found themselves drowning in a sea of debt overnight or within a few days. It just doesn’t work that way. Being in debt or having a debt problem is always a result of making a series of bad financial decisions. I have listed a few early warning signs for someone who is about to head into massive debt.
Here are the 4 warning signs that you have a debt problem
1) You have more than 5 credit cards
Do you have more than 5 credit cards and all are maxed out? Even if your balance is near the credit limit, it is needless to say that you are about to get into major trouble. Now, if you pay off your bills on time then your credit cards won’t be much of a problem; in fact, they might help raise your credit score.
However, every time you buy a new credit card, the issuer will perform a hard credit check, as a result, your credit score will take a hit. So, it is advised to do your research before buying lots of credit cards. In general, it is considered to be a debt trap.
2) You are spending more money than you make
Most people who end up in massive unmanageable debt, believe that they will somehow earn more money in the future. Or maybe they have a plan to do so. But spending more money than you make is never a wise financial move. No matter how much money you make, if you are spending it all or worse borrowing more money to maintain your extravagant lifestyle, you will always have a debt problem.
3) You make a minimum payment on credit card
Being allowed to pay less money each month may seem like a great option initially, but are you aware of its implications in the long run? Credit card companies operate smartly. They know your weaknesses. By allowing you to pay “minimum payment due”, they get to charge you more money for the short term loans. Moreover, the longer your debt repayment period gets, the more harm it will do to your credit score. So, always pay 10-20% more on your monthly credit card bill.
4) You use cash advances from your credit cards
Credit card companies offer you a facility to withdraw a limited amount of cash using your credit card. This facility is only meant to be used in times of emergency. For instance, if you found yourself cashless in a new city and all you have in your wallet is your credit card. Then it makes sense to withdraw some cash to pay for a ride back home.
But if you are using the cash advance to pay for other bills, you are definitely headed towards a debt trap. The interest rate on cash advances is quite higher(around 20-25%). In some cases, there is also an additional fee for using this facility.
Being in debt might seem like a confusing mess, but a debt payoff plan is all you really need. Start clearing one debt after another. Do not spend all your income on paying multiple debts all at once. While you are focusing on one account at a time, make sure you are making the minimum payment(in worst case scenario) on all other accounts.