Today, more and more people are finding themselves in severe debt – not a good place to be given the current state of the economy. Most adults have some combination of auto loans, credit card debt, mortgage debt, medical debt, student loans, and personal loans.
Not all debt is bad. Many of life’s necessities – cars and homes, for example – would be out of reach for most without the assistance of a loan. But where is the line? The following are a few common signs that you might be in dangerous territory with your debt load.
Increased percentage of income going to debt
Many experts believe that you are in, or are headed for, financial trouble when too much of your paycheck (about 36%) is being allocated toward debt payments. For some the definition of being “in debt” is more about a feeling than a number. If you find more and more of your earnings going toward bills each month, it might be time to make a change.
Inadequate or nonexistent savings
Consumers who are dealing with debt may feel that there isn’t a dime to spare. According to recent statistics, significant numbers of consumers report either having no savings or more credit card debt than retirement savings. If you find the concept of saving money challenging, you aren’t alone. Personal saving as a percentage of disposable personal income has dipped into negative territory in recent years.
Minimum payments on maxed-out credit
The average household owes more than $8,000 in credit card debt. If you pay only the minimum balance each month, it will take you a long time to pay off your cards – and you will be paying the maximum amount possible. It is necessary to pay more than the minimum on your cards if you ever want to get out of debt.
Chronically late in paying bills
Does the mailman's arrival with a new stack of bills fill you with a sense of dread? Avoiding payment of bills leads to accrued interest, increased balances, a lower credit score, and the possibility of further collection efforts such as wage garnishment.
Not knowing how much you owe
Take a good look at your debt. How much do you owe? What are the interest rates? Odds are that you have a couple of cards and some loans with several different rates. To get a full picture, you really should get reports from each of the three major credit reporting agencies, Equifax, TransUnion, and Experian, because different information may be contained on each of the reports. Once you have copies of your credit bureau files, you will be able to determine who you owe and how much you owe.
Threatened with legal action
If a debt goes unpaid for an extended period of time, creditors may turn your account over to a collection department or agency. If you default on bills and have found yourself in debt collections, you’ll be dealing with creditors and collection agencies frequently. In this circumstance it’s important to know your consumer rights under the Fair Debt Collection Practices Act (FDCPA). Understanding the rules can make sure you aren’t being inappropriately stressed.
If you recognize any of these symptoms, it might be a sign that you need to take a good look at your total debt levels, spending habits, and plans for payoff. If your financial obligations are overwhelming and you find yourself losing control, seek help. The experts at MMI are trained debt management specialists, and can assist you in developing a plan to get your debt under control.