How to Tell If You're Using Too Much Credit

Scanning a credit card.

Credit can be a really good thing. It can be more convenient than cash and usually comes with some really great consumer protections in the event that your account is compromised or misused. It can also let you buy things that you don't have the funds to pay for right now. That can be a good thing in some instances, but can become a problem quickly if you start abusing your credit.

So when does a healthy relationship with credit start becoming a problem? 

Signs of Credit Overuse

Constant credit card balances

In an ideal world, you'd pay off any balance at the end of your billing period and avoid the interest charge. In reality, that's just not how it works. Sometimes it may take a few months to pay down a balance.

But what if you always have a balance? That could be a sign of  a problem. If you find it challenging to pay off your credit card balance and regularly carry high balances, it may be time to start looking for help.

Maxed-out credit cards

Your credit limit is the maximum amount you can borrow from an individual account. Typically, creditors set your limit based on your financial capacity. In other words, they don't want you to borrow more than they think you could be expected to eventually pay back.

Maxing out your credit cards is, at best, a sign that you may be borrowing the upper most limit of what you can afford. At worst, it's a sign that your credit usage is getting out of control.

Late or missed payments

Frequent late or missed payments on your credit accounts are usually a sign that you can't afford your payments. Now, there may be plenty of reasons outside of your control for why you can't make these payments, but that fact remains that if you've borrowed money that you can't afford to pay back, you're almost certainly overextended on your credit. 

Increasing debt load

Whether or not your cards are maxed out and whether or not you're able to make consistent payments, if you debt is constantly on the rise that can be a pretty clear warning sign. Ask yourself why your debt is increasing? Is it an unexpected expense? Or is your spending simply exceeding your income every month?

Minimum payments only

Making the minimum payment will keep your account in good standing, but it may not get you all that much closer to being out of debt, especially if your interest rates are high. If you can only afford to make the minimum payments on your credit accounts, it's a potential sign that you're using too much credit.

Credit applications denied

Lenders are happy to lend you money, but only if they feel confident that you'll pay them back (in full, with interest). If you're being denied for new credit, there can be a lot of reasons why. One of the biggest may be that the lender thinks you've already got too much debt to afford any more payments.  

How to Address Excessive Credit Use

Create a budget

The first step in managing excessive credit use is to create a budget. Understand your income, expenses, and debts. This will help you identify areas where you can cut back and allocate more funds to paying off your credit balances.

Pay down debt

This may sound self-evident, but if you're using too much credit, you need to focus on paying back what you owe. Start with high-interest debts like credit cards and work your way down to lower-interest loans. Making consistent, substantial payments will gradually reduce your debt load.

Build an emergency fund

An emergency fund is crucial to avoid relying on credit for unexpected expenses. Having a financial safety net can prevent you from going deeper into debt when unexpected bills arise.

Seek professional help

If you're struggling with excessive credit use and debt, don't hesitate to seek professional assistance. Credit counselors and financial advisors can provide guidance on managing your finances and getting back on track. MMI offers confidential financial counseling 24/7, online and over the phone. Counseling is free, so there's no excuse not to get the help you deserve. 

Tagged in Build your credit score, Smart shopping

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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