Credit cards can be a double-edged sword and if you don’t handle them carefully, it’s easy to do serious damage to your finances. Charging purchases is certainly convenient and you can even score big rewards, like cash back or airline miles but there’s always the danger of racking up high-interest debt. As long as you’re paying your card off in full each month, how much you charge may not matter.
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However, if you’re in the majority that doesn’t pay your credit bill in full you could be nearing the deep end without even realizing it. When it comes to credit cards and debt in general, it pays to know how much is too much. If you’re worried about whether your debt load is too heavy, here are some warning signs that it may be time to put the plastic away.
1. You’re Only Paying the Minimums
It’s easy to think that your credit card debt is under control as long as you’re able to pay the minimum each month. But the reality is you’re setting yourself up for financial disaster. Even if you’ve got a relatively low rate on the card, just paying the minimum probably isn’t making much of a dent in the balance. If you’re still using the card regularly, all you’re doing is creating a bigger problem for yourself.
When a significant chunk of your income is going towards the minimums, it may be a sign that your debt is more than you can handle. If you’re having a hard just making the minimum payments at all, it could be time to get professional help with managing your debt.
2. You’ve Mastered the Debt Shuffle
Transferring your high-interest debt to a card with a lower rate is a smart move if you’re looking to save some money and pay off what you owe faster. Taking a cash advance is also a convenient, albeit expensive, option for getting your hands on cash when you need it. If you’re using one or both of these tactics to keep your creditors at bay, you’ve likely bitten off more debt than you can chew.
Shuffling your debt around from one card to another can help you avoid making the minimum payments and it could even save you a few bucks in interest but it doesn’t make the debt go away. All you’re really doing is robbing Peter to pay Paul and you could be making the situation worse if you’re paying excessive transfer or advance fees.
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3. You’re Not Able to Save
Having a cushion of cash tucked away can be a real budget-saver when an unexpected expense crops up. Without an emergency fund, there’s a good chance that you’ll end up even deeper in debt when you have to pay for that car repair you didn’t see coming. If all your extra money is going towards your debt each month, building up some emergency savings is next to impossible.
Staying stuck under a mountain of debt also makes it harder to save for other goals, like retirement or your children’s future education costs. The longer you stay in debt, the less time you’ll have to save for these important financial milestones.
4. You’ve Been Denied New Credit
When you apply for a loan or line of credit, the lender will take a look at your credit history before they decide whether or not to approve you. Specifically, one of the things that potential lenders are interested in is how much debt you have compared to your total available credit. When you’ve got multiple credit accounts that are close to or at their limits, it sends up a big red flag that tells lenders you may not be responsible with your money.
If you find yourself getting denied for new credit more frequently, the amount of debt you have could be the reason why. Paying down your balances can give your score a boost and your budget some much-needed breathing room.
5. You’re Behind on Your Bills
When you’re trying to keep up with multiple debt payments each month on top of your other bills, it’s easy to let something slip through the cracks. It’s also harder to get everything paid on time if your budget is stretched thin from paying so many creditors. Late and missed payments can cost you big if you get hit with late fees and they can also cause your credit score to take a serious nose dive.
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Too much debt can erode your financial foundation and it’s important to address the cracks before it gets out of control. Being able to recognize when your debt has become a problem is the first step towards getting rid of it once and for all.
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