Some debt is a normal part of life. No matter how well you manage your money. Not all debt is bad. There is good debt, such as student loans, mortgages, opening a home office, and other investments in your future. Examples of bad debt are auto loans, credit card debt, and revolving loans. Budgeting and tracking your money will keep you on target with your financial goals and eliminate stress. But how do you know when your debt is out of control?
1. Financial Anxiety is Keeping You Awake at Night
Countless studies prove the importance of sleep. Lack of sleep causes irritation, depression, and diminishes cognitive functioning. It often leads to physical ailments. If money stress keeps you awake at night, it is a clear sign that you need to make some changes in your financial life.
2. You Cannot Make the Minimum Payments
Paying only the minimum due each month is like treading water. You will make little progress toward eliminating debt. However, not making even the minimum is a sign that your debt is out of control. You will face increasing interest rates and fees, extending the life of your debt.
3. You Use Your Credit Cards to Pay the Bills
You should be able to pay your monthly bills from your income. But if your entire income is going to debt payments and forcing you to use credit cards to pay the rent, utilities and buy groceries, your debt load is too high. Utilizing credit cards to pay your monthly bills means that you add to your credit card debt, possibly maxing out your cards. You negatively impact your debt-to-income ratio, a significant factor in determining your credit score. You fall into an endless spiral of debt.
4. You Avoid Phone Calls
After missing a few payments, your creditors will send your account to collections. If you are afraid to answer the phone because collectors are hounding you for payment, this is a sign your debt is out of control. Avoiding them does not help either. If you are unable to work out an arrangement with collections, the next step is legal action. It is time to implement a debt relief strategy.
5. Your Credit Score is Deteriorating
Your good credit score may be the reason why you were able to assume so much debt. But, when your debt load is beyond your capacity to handle, your credit score will suffer. A bad credit score will make it challenging to acquire financing in the future. Further, a bad credit score costs you money. You lose out on the opportunity to negotiate for the best financing terms.
6. No Money Left at the End of the Month
There are times when your budget is stretched, leaving little to no money at the end of the month. If your entire paycheck goes to cover debt payments, and nothing remains for emergencies and retirement savings, it is time to reevaluate your financial life. An emergency fund helps you pay for those unexpected events that happen. The amount of debt you carry should not interfere with your ability to save. If you cannot, you need to reevaluate your financial goals, budget, and debt reduction strategy.
7. You Spend Money to Alleviate the Stress
Your debt is out of control if you find yourself making purchases or going on excursions to improve your mood or to forget about money. Pretending to your friends and family that you have it under control by spending money on them or in front of them will add to the debt you have. And you will fall into an even deeper hole of depression once the euphoria of the spending spree subsides. This is a clear sign that you need to take immediate action to get back on track.
As is said, you should own your debt; your debt should not own you. Manageable debt, primarily when it serves your long-term financial growth, is a healthy way of moving forward in life. Be honest about your situation and take quick action to keep control of your debt.