More than 45% of Americans have credit card balances. But sometimes, folks get in over their heads. The question is, how do you know if you are in that category and are carrying too much debt? Take a moment and consider whether the following activities from Credit.org apply to you:
The 10 Warning Signs of Debt That’s Getting Out of Control
You’re only making minimum payments. This is a no-win situation that won’t help you get out of debt. Try to make at least double the minimum payment.
You’re using cash advances to pay bills. This will only make your financial situation worse, as they generally are accompanied by significant fees and high interest rates. Try to use cash advances for emergencies only.
You often pay your credit card bills late. That habit will cost you more in late fees, penalty interest rates, and a lowering of your credit score. You might want to set up regular payments if this is your routine.
Your credit cards are maxed out. This is a big red flag, as it will lower your credit score as your credit utilization ratio rises and will lead to financial stress.
You’re using balance transfers to make ends meet. While I’m a fan of judiciously trying to get the lowest interest rate, they can be handy on a temporary basis, but it’s not a great idea to rely on these transfers to dig yourself out of a hole. It would be a better idea to create a plan to get out of debt completely.
You’re getting collection calls. Debt collectors signal that your finances are in a state of chaos. If this is happening to you, face up to the problem, review your debts, and consider a debt management program. And know your rights under the Fair Debt Collection Practices Act, which protects consumers from harassment and false threats.
You’ve taken out a debt consolidation loan but are still struggling. I’ve seen this happen time and again, when consumers borrow using such a loan or use their home equity to pay off debts. The problem is that while you may lower your interest rate and your payments, you risk falling back into bad habits and ramping up your debt again. Again, a debt management plan may be in your best interest.
Your debt problems are being hidden from your loved ones. I get it; it’s overwhelming and embarrassing, but if you disclose your issues, you may find that your loved ones can help you with a plan or strategy to get out of debt.
Your credit score is dropping. This can have long-lasting consequences and will impact your ability to secure debt (such as a mortgage) when you need it.
You’re losing sleep over your finances.
If you find yourself agreeing with several of the above assessments, it’s time to do something about it!
Here are a few ideas.
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How to Figure Out a Game Plan to Manage Your Credit Card Debt
Choose a repayment method. There are a couple of popular methods for paying off credit cards:
- Snowball Method: Make all minimum monthly payments and concentrate any extra funds on the debt with the smallest balance to build momentum.
- Avalanche Method: Make all minimum monthly payments and concentrate any extra funds on the debt with the highest interest rate to minimize costs.
Reduce spending. I’m not going to go into a dialogue about budgeting here, but if you don’t currently have one, it’s time to take stock of your income and your expenses, and begin using the extra money you have to reduce your credit card debt.
Stop charging. Make a determined effort to begin paying with cash. If you don’t have the cash, just don’t buy it.
Get help. Support can be found at a number of places:
Credit counseling programs. This brochure can help you navigate these programs, and this site can help you find a good counselor.
Debt management programs. These programs will develop a payment schedule with you and your creditors, which may include lowering your interest rates and/or waiving certain fees.
In these plans, you deposit a certain amount with the program each month, and they parcel the money out to your creditors. Be advised that these programs can take four or more years to complete, but if you follow the plan, you can eliminate your credit card debt.
*This post has been partially excerpted from the latest issue of Cabot Money Club Magazine. To read more about finding the best credit cards, avoiding credit card scams, and managing credit card debt (and for access to the full back catalog of issues), subscribe to Cabot Money Club today.
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