When you want to make a large purchase or find yourself in a financial bind, having a credit card can be a lifesaver. Sure, credit cards are convenient and beneficial in more ways than one, but when you’re an irresponsible card holder, you end up with the bad end of the deal. That once $200 purse now costs you $300. In these trying economical times, consumers are overextending themselves as it pertains to credit card purchases, and as a result end up paying a high price.
Now don’t get me wrong, this is not to say that credit cards should not be used (I myself have three credit card accounts). However, it is equally as important to realize when you’re in over your head. Not sure what ‘in over your head’ looks like? Here are a few signs you may be drowning in credit card debt.
- You’re Hiding Purchases or Are in Denial
No one wants to admit that they’re in debt or that they’ve allowed their financial circumstances to get out of hand, but life happens. If you’ve found yourself hiding items that you’ve purchased from your spouse, avoiding collection calls from creditors, or downplaying the need to repay your balances, this is a sign of denial. It means while you may be inwardly aware of the circumstances you’re in, you’re not quite ready to express that outwardly.
- You Avoid Reading Statements
It can be stressful to come home from work, open the mail, and find a credit card statement claiming you owe them thousands of dollars. Whatever good mood you’re in is likely down the drain. So rather than spoil the mood, you decide its best not to open the mail. If you don’t see the balance it can’t hurt you right? Wrong? Your account balance is going to accumulate whether you like it nor not. Reviewing statements allows you to get a handle on what the principal balance is, what you’re paying in interest, and if any late fees have been assessed.
- You Can Only Afford Minimum Payments
If you have a credit utilization percentage (the amount of credit used verses the amount of credit available) above 30% and you’re only making minimum payments, this is a huge sign that you’re in over your head. While minimum payments prevent you from getting late fees, it does nothing for your overall balance. Minimum payments are typically just the amount of interest leaving the outstanding balance to grow.
- You’re Barely Making Ends Meet
When you look over your monthly budget, do you have any room for error? Do you find that after paying all of your bills, you’re not able to enjoy even little things like a family dinner or a date to the movies? This may be another sign that you’re in over your head with credit card debt. Often consumers use credit cards to purchase small pleasures, or even basic necessities as a means for getting by each month.
- Saving is Non-existent or Challenging
After paying all the household bills and your credit card payments each month, do you find that you’re left with nothing to put towards savings? The bad part about it is that not having a savings in place will only force you to go further into debt. Why? Well, because when an emergency arises, chances are you’re going to resort to your credit card for financial relief.
Savings Tip: If you’re dealing with a high balance on a high interest rate credit card, you might benefit from looking into credit card offers with balance transfer options. Be aware that you can pay zero interest on your CC, which may help you save on high interest and late fees.
- You Need a Second Job
Have you taken on a second job to pay down your debts? While this is a commendable act, if you have to resort to supplementary income, this is a sign that you’re in over your head in credit card debt.
- You Have High Balances or Maxed Out Cards
Whether your high balances or maxed out credit cards are the result of high interest rates and late fees, or if you’ve simply kept spending until you couldn’t spend anymore, high balances and maxed out credit cards are huge financial burdens. The balance will continue to grow until you’ve taken some form of action to get the balances paid in full.
- Using Credit Cards is Second Nature
Credit cards are borrowed funds which at some point have to be repaid. However, many people don’t practice responsible borrowing until they’re in too deep. Using credit cards for everything and maxing them out is never a good thing and is a sign that you’re in over your head.
- Robbing Peter to Pay Paul
You’ve got two credit cards payments due around the same time, and you don’t have the money to pay them both. What do you do? If your answer is to take a cash withdrawal from one credit card to pay another one, then you’re robbing Peter to pay Paul. While it may seem like an easy solution, it’s like putting a band aid on a gunshot wound.
- You Are Denied New Lines of Credit
Whether you’re looking for a car loan, home loan, or personal loan, if you’ve been rejected as a result of the findings on your credit report, chances are you’re in over your head. Lenders will typically reject applicants who have a low credit score, or a high debt to income ratio.
- Late Payments are Common Practice
No one is perfect, and life does happen. However, if you’ve become accustomed to making late payments on the regular basis, this is not a good sign. Late fees are assessed and reported on your credit history. Late fees can also increase the total balance causing you to fall deeper into debt.
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If any of these warning signs resembles your current financial status it is time to do something about it. There are several methods for which you can pay down your debts and get back on the road to financial independence. However, if you’ve been ignoring the problem, paying the minimum, robbing Peter to pay Paul, or routinely making late payments, you will only find yourself in worse circumstances in the months to follow. Take a look at your credit history, research various methods for paying down your debt, and begin taking the necessary steps towards living a life free of debt.