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Debt and credit can be valuable financially when it comes to buying a home or a vehicle, sending your children to college, and even getting leverage for other purchases. But it’s dangerous to amass a huge amount of debt because it can lead to irreversible damage to your finances.
So how do you know when you’re in too deep?
Many people have difficulty defining their boundaries. While it’s usually okay to take out a mortgage to buy a home for your family, borrowing too much could spread out your finances too thin.
The same thing applies to car loans, personal loans, and credit cards. It doesn’t matter if lenders still give you the green light to access more credit or not. There comes a point where more new debt can endanger your financial well-being – not just now but in the years to come.
If the following warning signs are clear in your own situation, then you’re courting financial disaster:
You Only Make Minimum Payments
Credit cards could be your best friends. They can give tons of convenience, you can use them anywhere, and you can earn nice rewards when you use them.
But the catch is, they’re only good if you pay them off every month and avoid credit card debt. As soon as you start carrying a balance, you’re tipping the scales out of your favor.
The card companies love it when you just pay off the minimum amount due each month. In a short time, you’ll end up paying a chunk of finance charges and it’s going to take many months for you to pay them all off.
If the minimum amount is really all that you can afford to pay each month, it’s a sure sign that your debt is already running wild.
You Can’t Get Credit
The first thing that lenders, like credit card companies, want to see from borrowers is if there is a strong possibility you will actually pay your debt back.
If you’ve already saddled yourself with a heavy debt load, you effectively lessen your chances of getting a new loan. If this is the case, lenders will definitely worry about your ability to repay a new loan.
If lenders or card companies keep turning you down and the only way lenders can extend credit to you is under very onerous terms, stop and take stock of your situation. If lenders are saying “No!” to you because of your excessive debt levels, you can’t deny that you already have a debt problem.
You Lie About Your Debt
Have you come to that stage when you’ve lied to your family or friends about how much you owe in credit card debt? It’s because you’re already embarrassed to admit that the problem has become worse and you don’t want to think about the amount of money you owe.
Of course, you also don’t want other people to learn about the truth.
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If your debt bothers you constantly such that it prevents you from concentrating on other things and robs you of sleep, it’s time to do something. Sweeping your debt problem under the rug and pretending it’s not there will only prolong your agony and worsens your situation.
The earlier you face it, the sooner you’ll find a solution to make positive financial changes.
You Transfer Your Balance Frequently
Some people think they can outsmart card companies by transferring their debt from one card to another. They are quick to grab a low introductory interest rate offer and transfer their balance to the new card.
After they’ve transferred their balance and the promotional introductory period lapses and the interest rate goes up, they simply open another card and do the balance transfer scheme all over again.
This strategy might sound inviting for the moment but it’s an empty solution. Basically, you are not achieving anything because you are just moving debt from one place to another. What you should focus on is how to pay everything off.
If you’re not careful, it’s very easy to maximize your credit lines and confuse your due dates and miss some payments. This would affect your credit score and pretty soon, credit card companies won’t be open to giving you a new card.
The way to take full advantage of a balance transfer is to transfer to a low-interest card and stop using the card to make any new purchases. Then, do everything you can to pay your outstanding balance as fast as possible, or at least before the introductory period wears off.
You’re Starting To Miss Payments
If you’ve begun to skip out on settling certain bills every month, the signs are pointing to danger that your debts may already be out of control. Every time you’re late in paying your bills, it will create a negative impact on your credit score.
This would negatively affect your chances of getting financing in the future. Plus, paying late also subjects you to a late fee, adding more strain to your finances.
You Must Borrow To Pay Your Bills
If you’re left with no choice but to borrow money from family or friends or you need to make a cash advance on your credit cards, your debt problem is getting serious.
A cash advance from your credit card is the most disadvantageous solution you can think of. You’ll have to pay a higher financing charge than your regular purchases and you also need to pay a cash advance fee.
Talk about a double whammy.
What’s worse, you’ll run out of sources to borrow money from and you’ll have to contend with all the balances and debts that you’ve accumulated.
The best way to avoid this situation is to have a plan to reduce your expenses and find ways to add to your income. This also means living within (or even below) your means so you will not be forced to borrow money from loved ones or grab expensive loan offers.
Don’t Ignore Your Problem – Face It Head-On
Your debt problem might be continually staring at you in the face, but often it’s easier to deny facts than to actually do something about it. If somehow, this describes you at the moment, you can’t escape the fact that it’s still causing you anxieties even if you pretend it’s not there.
The surprising thing is, when you decide to face your situation and address your debt problems, your worries will begin to gradually disappear.
It may cause you to undergo some pain and humiliation but the earlier you accept the reality and adopt some corrective actions, the earlier you can get out of the messy situation. And if you don’t modify your spending and debt habits, you’ll dig yourself deeper into the debt hole that you’ve found yourself in.
Now, if you think that your problem is something you can’t handle on your own, don’t lose heart. You can find people who are willing to help you.
Find a nonprofit credit counselor, a financial advisor, or even a volunteer life coach. They can offer guidance on how you change your perspectives and behaviors, how to craft a realistic repayment plan, control your spending and find practical ways to bring your debts under control once again.