36 10 Signs that your in debt trouble
What’s up everybody and welcome to the Financially Free Journey podcast where I aim to dispel the seemingly complex topic of personal finances, money management, debt, savings, investing and even retirement. This podcast is designed to help you feel empowered by increasing your knowledge so you can flex your money muscles!
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Ok, I have been receiving a lot of questions from you all at firstname.lastname@example.org and you guys have some really good questions. Today’s episode is actually an answer to a listeners question;
“Hi Courtney, thanks for all you do and your podcast is really helping me change my outlook on my money. My question for you is that I have debt…probably like most people. The issue here is that as soon as I pay it off, it seems like more debt keeps piling on and I cant seem to get my debt fully paid off like I want to. Do I have a debt problem? Thanks again and keep up the good work”- sincerely, moneyrookie
Thanks for the email and question Moneyrookie 😊
So this is a pretty common scenario that a lot of us find ourselves in over and over again. It’s like dejavu. Everytime you think you have your debt paid off, for some reason more debt just keeps coming. Is this a sign of having a debt problem?
Debt is a very powerful tool that really help you but it can also really hurt and destroy your finances….all depending on the way you use it. An educated individual will use low-interest debt to purchase assets that will increase in value overtime and help build that individuals wealth overtime. This is an example of a smart way to leverage the debt tool.
However, a lot of people…I feel safe to say, a majority of people use debt…not for good, but for living way past their means, and really letting their finances get out of control.
Well, todays episode is going to be 10 warning signs that you have a debt problem. If you have any of these warning signs, it’s best to assume you have some sort of a debt problem and its time to take drastic measures in the way you manage your money in order to really get on the right path. I am going to review the red flags you need to look out for and how these warning signs could really prevent you from being on the right path to building wealth and financial freedom for yourself.
Here we go!
#1 You can only make minimum payments on your debt
This can be a vicious cycle and a lot of people are stuck in it. If you can only afford to pay the minimum on your credit cards each month, this indicates that you have a debt problem. The longer you allow your balance to sit on a card, the more interest builds up and over time, you will end up paying almost double what you originally spent on the card.
So if you are currently only able to make minimum payments on your credit cards, its time to take a hard look at your finances and figure out where you can slash your spending significantly in order to break this cycle.
This issue here too is that usually when you have a large balance on your credit cards and you cant make more than the minimum payments, you typically are forced to continue to use the card for your everyday expenses.
#2 Your credit cards are maxed out
Now, this can be a big indicator of a debt problem. Usually, if you are holding a balance on your credit cards that exceeds more than 30% of the total limit available to you, this can indicate the issue of living beyond your means and financing a lifestyle that you cant afford with your credit cards.
The other issue with holding a high balance on your credit cards, even if you paying on them is that this can actually decrease your credit score as well. Lenders look at your credit utilization rate and the higher your rate, the more of a risk for repayment you are in the lenders eyes.
This is a sign that you need to reign in your spending and create a realistic plan to pay off your credit card and not continue to live beyond your means in the future.
#3 You have borrowed money to pay your bills
A common issue is that because of your unsecured debt or total debt payments each month, you are not able to afford to pay all of your bills. So what happens? Many people use their credit cards or borrow from family and friends to pay their bills each month.
If this is you and you have borrowed either in the form of paying your bills on credit or borrowing from individuals, this may be an indicator that you have a debt problem.
#4 You Can’t pay your bills on time
There are several different reasons why you may not be paying your bills on time and one of those reasons may be that you need a better organizational process when it comes to paying your bills on time.
Most likely though is that you are not able to pay your bills on time because your spending level is too high in accordance with how much money you make.
Ignoring your bills is not the solution here because it will come back and bite you in the butt in the future. You will have hurt your credit score and you will end up having to pay more because of the interest and fees that are accumulated when you don’t pay your bills.
The solution here is to contact your creditors and come up with a payment plan solution. Usually, if a creditor knows that you are trying to make it right and you have the intention of paying the bill, they will work with you to make sure you have the time and payment amount you need in order to follow through.
#5 You don’t know what you owe
A pretty common tactic that we all do is, if I don’t open the bill then its not really due, right?
Wrong! If you don’t open your bills and look at what you owe, guess what? You still owe that money.
If you don’t know how much you owe, this may be a sign that you have a debt problem. If you are avoiding opening up your bills and looking at the balances that you owe, this could be a major sign that you have a debt problem and you need to take a good look in the mirror.
The solution here is to get organized. Make a spreadsheet or just write down all of your debts. Create a realistic plan to pay them off and contact your creditor for assistance with a payment plan if the amounts you owe is too much for how much income your bringing in each month. This could also be an opportunity to refinance your debt and consolidate the debt in order to be better organized but also to lower the total interest you are paying out on the debt each month.
OK, WE ARE GOING TO TAKE A SHORT SPONSOR BREAK BUT WHEN WE COME BACK WE ARE GOING TO GO OVER 5 MORE WARNING SIGNS THAT YOU MAY HAVE A DEBT PROBLEM SO DON’T GO ANYWHERE!
Welcome back everyone! Thanks again to this episodes sponsor!
Lets get back into it
#6 your debt to income ratio is too high
Your debt to income ratio is a key way to be able to tell if you have a real debt problem. The DTI ratio is a key formula that lenders use in order to assess the amount of risk they would be taking on if they lend money to you.
In order to figure out your DTI- add up your total monthly debt payments—including credit cards, loans, and your rent or mortgage payment—and divide that amount by your gross (pre-tax) monthly income.
For example, if you earn $5,000 and your debt totals $2,500 per month, your DTI is 50% ($2,500 / $5,000 = 0.5). Most lenders consider a DTI above 40% too high, especially when you’re applying for a mortgage. So a 50% DTI means that you have more debt than you can handle for your income.
This is a great way to monitor your financial health and really check yourself on your spending. This is a key indicator that you are living beyond your means if your dti is too high.
#7 you overdraw your bank account
Now- I think we all have accidentally overdrawn our bank account before, so no shade if this is something you have done a few times. What I am taking about is if you overdraw your bank account on a regular basis. Do you use the ability to OD your account as a way of making ends meet? If so, this is definetly an indicator that you are living beyond your means and you may have a debt problem that if putting your finances in a tale spin.
Now, there is a cure to the sickness of overdrawing your bank account on a regular basis. You need to simply create a realistic spending plan and perhaps if you need to take it one step further, deal in cash for your spending.
Racking up OD fees at a bank is one sure way to throw your hard earned money down the drain. Trust me, banks don’t just give out short term loans for free. Most financially institutions charge you $35 a pop every single time you overdraft your account. That can add up to hundreds of dollars and its really not doing you any favors.
#8 You don’t have savings
Now, just not having savings doesn’t mean you have a debt problem because there are a lot of people that don’t have debt but they struggle to bring in enough money to save and I understand that. However, there are individuals that have drained a savings account they once had or even tapped into a retirement account in order to pay off debt. Now, if that’s you…this may be an indicator that you have a debt problem.
Not saving savings is one of the riskiest things you can do. One little emergency or unexpected expense like car problems or a medical bill, and your financially in big trouble.
Savings is creating a safe guard for yourself and a way to protect yourself from that one misstep that can put you in financial ruin.
Look, even saving small amounts every paycheck add up overtime. Many people under estimate what a little bit of savings can do for them so they just don’t save at all. Even $25 every paycheck can save you $1,300 in a year which is a pretty dang good safety net for any emergency that may come up in the future.
#9 Your finances have you constantly worried
Financial stress is a leading indicator for depression, anxiety and even divorce. Financial stress is no joke and if you are stressed, more than a healthy amount…like your losing sleep over it, then you absolutely have a problem with debt.
This is an indicator that you need to deal with your current financial situation head on and create a realistic plan to pay off bills that are lingering over your head and causing the stress. Do you need to sell off some things? Do you need to get a roommate? Take a look at your current situation and bite the bullet, whatever that may mean to your specific deal.
#10 You are getting calls from debt collectors
When you start getting from bill collectors, this is a sure fire way to know that you have a debt problem. The avoidance of your bills and allowing them to not be paid for so long that you have collectors calling you, is not the answer to your problems. In fact you are making your problems a lot worse because now your at the point that you can have your car repossessed or even have your checks garnished.
Now if you have debt collectors calling you, NEVER communicate with them over the phone. Get the companies information and let them know that you will only communicate with them via the mail.
I hope this episode helped shed some light on warning signs that you may have an issue with debt. And look, its so shame or shade from me, we have all been there and dealt with these issues. It’s important to normalize these warning signs and understand what you can do about them so you can get on the right path and start to feel better about your financial situation.
Thanks again for tuning into todays episode and if you haven’t already, make sure you go subscribe, rate and review the show where ever you listen to your podcasts and also follow up on Instagram @financiallyfreejourney for more tips and motivation to help you on your financially free journey, until next time!