We’ve reached a financial tipping point in America. Most adults now have debt. Mortgages are the most common type, as houses tend to be so expensive most people need a long-term loan to purchase one. There’s also a lot of expense associated with getting a car, even a used model. And there are many valid reasons to use credit cards: building your FICO score and spreading out payments on big-ticket purchases, to name a few.
But at a certain point, debt becomes dangerous. Instead of someone having a firm handle on their debt, it starts to control them — causing stress and wreaking havoc on financial stability.
Here are five warning signs your debt has crossed the line into the danger zone.
#1: You’re Still Depending on Credit
If you’re already facing significant debt and continuing to rack up credit card bills each month, you’re inching toward a potential debt crisis. While purchasing on plastic does buy you some time before it’s time to pay the piper, you’ll still be very much on the hook for every dollar you borrowed. And those dollars can actually inflate if you’re accumulating interest, too.
One way to break the habit of putting purchases on credit is trying an all-cash diet, which some money experts liken to a “juice cleanse” for your wallet. This strategy entails taking out however much cash per category your budget allows and spending no more than what’s in the envelope. Once it’s gone, it’s gone; there’s no option to roll over payments until next month.
#2: You’ve Lost Track of How Much Debt You Have
As helpful as it’d be, there’s no magical counter that displays your total debt in real time. You might have to dig to find that number, especially if you’re carrying some combination of medical bills, auto loans credit card balances, student loans, mortgage payments, personal loans, business loans, etc.
It’s helpful to set aside an afternoon and total it all up — every last balance from A to Z. Not only will you do yourself the favor of getting all your miscellaneous debts in one place, but you’ll have a clearer mental picture as to how far away that finish line is. Then you can choose the best strategy for you, based on the amount and type of debt you’re carrying.
You might even find you’re carrying more debt than you originally expected. While this can feel jarring to discover at first, it’s better to know than to live in limbo. If you find you owe $7,500 or more in unsecured debts, you can start exploring alternatives to bankruptcy like debt settlement. And always remember: No hole is too deep to escape.
There are thousands of Freedom Debt Relief reviews from people who found themselves overwhelmed with debt at one point. First figure out how much debt you have and what kinds, then research your options.
#3: Minimum Payments Have Become the Norm — or a Stretch
The thing about debt is you rarely have to pay the balance in full, month after month. Usually there’s an option to pay a small percentage or flat fee while still staving off late fees. This is the minimum balance due. But it’s a trap to start only paying the minimums, as you’ll soon find your interest keeps growing exponentially in the background.
This approach can accidentally keep you in debt for months or years longer than your original repayment plan.
#4: You’ve Wiped Your Emergency Fund
You can technically survive without an emergency fund. But you’re setting yourself up to take on more debt anytime an unexpected expense arises. If you’ve wiped out your emergency fund paying for essentials or keeping creditors at bay, take it as a sign your debt has gotten out of control.
#5: You’ve Hit Your Credit Limit
Ideally you’re only ever using 30 percent or less of the total amount of credit available to you across all lines. Keeping your credit utilization ratio low is a plus for your credit score. If you’ve maxed out any cards lately — or if you’re maxing out every line of credit you’ve got — then it’s time to take action.
If you’re experiencing any or all of these debt danger signs, it’s time to sit down and come up with a real plan to rein in your debt.