How to Recognize a Serious Debt Problem


by Martin Lukac - Date: 2006-12-19 - Word Count: 501 Share This!

It is amazing how many people out there don't know that they are one step away from financial disaster.

So many people live by the idea that they will just charge something this one time and pay for it later. They don't see that it is building up until it is too late. I know how easy it is to get into debt, but once you are there it is hard to see that financial disaster is close at hand.

Here are four ways to tell you are in financial trouble:

1. If your minimum monthly credit card payments are more than 20% of your paycheck (after taxes), you are walking a tight line. For example, if you bring home $1000 a month, your credit card payments at a minimum should be no higher than $200. Your entire debt load, including your rent or mortgage, should be no greater than 30% of your gross income. If your gross monthly income is $1500, your total debt load should be under $450.

Many lenders will tell you that you can afford more debt. But keep in mind that they are looking to lend you money, not save you money.

2. If you have several accounts that are delinquent, you are already in trouble. Being unable to pay your bills on time is a bright, neon sign that says you have too much debt. You have to take steps immediately to reduce your spending or increase your income.

Plus, if you are charging your bills to your credit card, you are creating more debt for yourself and higher payments in the long run. This is never a good idea. There are better solutions. Find a second job or cut out the unnecessary spending. Find another way other than more debt.

3. If you can't even charge your bills because you have maxed out all of your credit cards, you are close to financial trouble. Your credit score is taking a hit as well. Lenders don't like to see you with high balances. It means that you are stretched to the limit. It can be difficult to find options, such as refinancing your mortgage to pay off high-interest debt or buying a cheaper vehicle.

Plus, if you are truly maxed out, chances are that you haven't been saving anything. What will you do if you have an emergency and have no savings and no credit?

4. This one is really creative. If you are taking out cash advances to pay your credit card bill, you aren't getting anywhere at all. You are creating debt to pay debt. You aren't even breaking even here. Credit card companies charge high fees and higher interest rates for cash advances.

If you find that you aren't able to make ends meet or that things are tight, it is time to make a change. You need to find ways to decrease your spending, eliminate your debt and increase your income. Once you get rid of the debt and the stress that comes with it, you will never go back again.


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Martin Lukac http://www.MartinLukac.com , represents http://www.RateEmpire.com , an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com

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