Back to Knowledge Center

Warning Signs of Too Much Debt

Many people wind up with too much debt because they do not manage their finances responsibly. It is very easy to accumulate debt that could cause a serious financial problem and leave you with bad credit. Keep yourself abreast of the warning signs of too much debt so you can handle any issues that arise as soon as possible.

Debt to Income Ratio

The first thing you should do is calculate your debt to income ratio on a monthly basis. This number can be sign of impending debt problems. This ratio is easy to calculate by taking your total debt payments and dividing it by your gross monthly income. This will give a decimal number. Multiply that by 100 to get a percentage. Ideally, your total monthly debt payments shouldn't exceed 36 percent of your gross monthly income.

Debt to Income Ratio = Monthly Debt Payments/Gross Monthly Income * 100

Look for these warning signs:

  1. You have no savings. Once you pay down your debt, you only have money left over for your monthly expenses and you have no extra money for savings.
  2. You are not sure of how much debt you really have. If you are unsure of exactly how much debt you have, chances are it's more than you realize. Get a copy of your credit report and add up all your debt so you know where you stand.
  3. You make only the minimum payments on credit card bills. Paying only the minimum due can get you trapped into debt. When you pay only the minimum due, it is going to take you a long time to pay off your credit card debt in full. Not only that, the rest of the balance escalates into bigger debt by additional credit card purchases and interest charges.
  1. You can't pay your bills on time. Not being able to pay your bills on time likely means you have too much debt. Set-up automatic bill payments and make a budget so you have money available to pay your bills on time.
  2. You have at least one credit card that is maxed out. If the balances are getting high or you are actually over the limit on one or more credit cards, you have too much debt. The best thing you can do is stop charging more debt on the cards and make arrangements to reduce the number of fees you incur each month for having high balance. Avoid making late payments as these fees will only make the situation worse.
  3. You use cash advances from credit cards to pay bills. Cash advances are typically accompanied by fees and exorbitant interest rates. If you've reached this point, you are in too much debt.
  4. You start to lie about spending. If you are lying to your friends and family about your spending habits, chances are you are embarrassed by them, which could be a sign of debt problems.
  5. You are denied credit. Creditors look at how much debt you have and how much of your credit limits you are using. If you are denied credit, you probably already have too much debt. Creditors work to try to prevent you from going more into debt, but can only do so much to help.
  6. You start getting calls from collection agencies.

Keep track of your credit accounts and be aware of what your payments are and when they are due.

To learn more about how to manage your finances and pay down your debt, get the Complete System to Repair Your Credit and Boost Your Credit Score. Download Today!