What Are Signs of Too Much Credit Card Debt?

Signs of too much credit debt

In America, the average credit card debt per household is around 8,000. Though it is normal to have debt, how can we tell when the debt is too much for us to handle? Many individuals believe that they are handling their debt correctly but they fail to take precaution measures. Often a combination of high increase rates and mounting debt will take people by surprise. Pretty soon, they will realize that they are spending more money paying interest back per month rather than the principle amount. This may lead to an uncontrollable cycle and have detrimental effects in the near future. There are a number of warning signs that you should heed if you are not sure you are managing your debt properly.

Purchasing close to your credit limit

If you are maxing out your credit card, it is a sign that your debt has grown significantly. One of the major factors that your credit card score is judged upon is how much you have spent compared to your limit. Spending anywhere near your limit will have a negative impact on your credit score. The ideal amount is spending 25% of your maximum credit card limit. In some cases, you may think that your credit limit is too low and ask for an increase in credit limit. Negotiating with your creditor will allow you to get a larger creditor limit. This is a much better option and has no negative consequences.  Creditors will use your credit score, payment history, occupation, and a few other factors to decide if you should get an increase in limit.

Having too many credit cards

Using too many credit cards to pay back debt is definitely a warning sign. Creditors will see this as an increase risk and drop your credit score. If you are maxing out each credit card, the potential for paying all the cards back decreases and the risk increases. It is typically very difficult to manage many credit cards at once. There is a high chance that you may forget and end up with late payments. Late payments are instantly a red flag for creditors.

Loaning even when interest rates are too high

If the interest rates that are given to you are too high, it often is a sign that you have a low credit score or have too much outstanding debt already. Having a low credit score could also show that you had a hard time paying off debt in the past. If you have too much outstanding debt or maxing out your credit card, this can be a sign that your debt is spiraling out of control. At this point, if you choose to accept a loan despite the high interest rate, you could be falling in a deep ditch that is hard to get out of. With such high interest rates, you will be trapped and the principle will remain while you are paying off the interest. This could lead to a never ending cycle of paying back interest while still owning the same amount. Not only will this cause your credit score to lower but the amount owed will never change.

Only paying the minimum amount

If you are only paying the minimum amount, it is a sign of trouble ahead. If you pay the minimum amount on a college loan, the loan could be almost 2x or 3x the principle amount after you finish paying it off. Paying the minimum amount also will also prolong the inevitability of falling into a cycle. A single major event such as the loss of a job could easily force you into bankruptcy or foreclosure.

Keeping your credit in check is a great way to build and manage your future. It will help you build a strong credit score and opens to the door to the lowest interest rates when applying for future credit, mortgages, or auto-financing. These are some of the few warnings that should give you a hint to change your spending lifestyle to prevent a cycle that so many Americans have fallen victim to. Remember you should be in charge of your debt and not the debt in charge of your life.

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