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America runs on credit as do most Americans. There might have been a time when having no debts was a good thing but those days are long gone by. It’s virtually impossible to function in society today if you don’t have a credit history, which means you’ve must have had or still have debts. But how can you know when you have too much debt and may be digging yourself into a debt hole? Here are some “early warning” signs.
Are you carrying too much credit card debt?
If everything in your financial life was perfect, you’d be paying off your credit card bills every month. If you aren’t, if you’re carrying balances forward from month to month, you may be soon be in a debt hole as your balances will just keep getting bigger and bigger and you’ll be paying more and more interest on your debts.
Are you using your cards to pay for every day stuff?
Another sure sign that you may be in trouble financially is if you’re using your cards to pay for every day expenses like groceries or school supplies for your children because you don’t have the cash to pay for them.
Are you making only your minimum monthly payments?
If you can make just the minimum payments required by your credit cards, you’re probably in that debt hole. The credit card companies are very skilled at setting minimum payments that correspond to your interest charges. Next time you receive a statement from one of your credit card providers, check out the minimum payment required vs. your interest charges. If the two are identical and you continue to pay just the minimum required, you may never get out of debt. I saw one example recently where if this particular cardholder continued to make only the minimum payments required by his credit card company, it would take him 18 years to get out of debt – assuming he never charged anything again on that card.
If you’re skipping payments
If you find you can’t make some of your payments, including even those minimum monthly payments, you’re definitely digging yourself into a debt hole. In fact, if you’re not already receiving nasty phone calls from your lenders you soon will be. And you may soon be hearing from collection agencies.
What’s your debt to income ratio?
One simple way to determine if you’re moving closer to debt hell is to figure out your debt to income ratio. The way to do this is first add up all your monthly income then all your recurring monthly debts. This needs to include your mortgage payment or rent, your auto loan, any personal loans or lines of credit – in other words any payment you are required to make every month.
Once you have done this, divide your debts by your income. This will yield a percentage. For example, if your monthly income was $4,000 and your monthly debts totaled $1,500, your debt to income ratio would be 37.5%. This might be acceptable but if you were to find that your ratio was 40% or above, you’d be carrying too much debt.
If you’re more than five months in arrears
If you’ve been unable to make payments on all or most of your debts for five months or longer, it might be time for you to put us to work settling your debts. Our debt counselors could contact your lenders and negotiate settlements that would probably save you thousands of dollars. We charge nothing until all your creditors have agreed to our settlements and we’ve provided you with a payment plan you approve. This means we cost nothing unless we can deliver on our promises.
Contact us today for more information about debt settlement and to see if we could put it to work to help you get out of that debt hole.