Are you living paycheck to paycheck?
If so, you might be stuck with too much debt and sacrificing a substantial amount of your paycheck for making monthly payments. Eventually, you may not be able to save money and have to compromise with your financial goals too. So in short, when your debts are out of control, your whole financial situation gets affected.
But let me tell you, debts don’t usually go out of control suddenly. It shows some warning signs that indicate your debt load is very high. Based on that, you will have to acknowledge the problem and look for effective ways to get out of the debt trap. But if you don’t pay attention to those warning signs, you might end up getting trapped in sky-high debts that you won’t be able to manage.
So, here we have listed some of the important warning signs that show your debts are out of control and need urgent attention.
You are receiving collection calls
If you have started receiving collection calls, your debts have become out of control. Because the creditors sell off unpaid debts to a third party debt collection agency around 180 days after the original due date.
So, if you are receiving collection calls, it means that you have failed to make payments. And that’s why your creditors have sold off your debts to a collection agency. The debt collectors can pursue your debts till your debts become time-barred according to your state laws.
But before your debts become time-barred, they will try to squeeze out as much as possible from you. Also, they can sue you in court for nonpayment of debts and appeal for garnishing your wages.
So, before things get worse, try to make payments always on time. And if your debts have already been sold off to a collection agency, try to negotiate with them to lower your outstanding debt amount.
You are using your credit cards for everything
You might be using your credit cards for maintaining a decent credit score or availing lucrative cash back offers. But if you are using your credit cards for every purchase, you might be racking up an incessantly high amount of debt.
So, you need to use your credit cards wisely like you can chalk out a plan for how you will use them. I would suggest you charge your credit cards for the amounts that you can afford to repay. Make sure to repay your outstanding balance amounts in full and within the due date. By doing so, you can improve your credit score, and thereby, you can use your credit cards to your advantage.
For small expenses, you can use cash instead of using your credit cards. A Forbes study has revealed that people tend to spend more with credit cards. So, by using cash you won’t have any chance of splurging, and thereby, you won’t rack up an incessantly high amount of debt.
You are unable to save money
Are you shelling out a major part of your income to make monthly debt payments?
If so, your savings are likely to be very low or nil at the end of the month. Remember, saving money is important for your financial well-being. Otherwise, you may have to take out another loan to meet any sudden expenses.
The simple solution to this problem is creating a realistic budget and sticking to it without any fail. By doing so, it will help you to chalk out a spending plan so that you don’t end up overspending and save money for your financial well-being. Besides, you can cut down your expenses as much as possible to dedicate more funds to pay down your debts.
You can barely make minimum payments
The minimum payment is the least amount that you need to pay to your creditors and keep your account in good standing. The amount is set by the credit card companies and you will have to pay it within the due date to avoid paying late fees or penalties.
But if you are making minimum payments only, then most likely, your outstanding debt amount is incessantly high. And you can’t afford to make the necessary monthly payments. So, you are delaying your repayment period by making minimum payments.
But do you know that by making minimum payments you are ballooning your outstanding debt amount?
Yes, making minimum payments can help you dodge the late fees. But you will have to pay interest on the remaining outstanding balance amount that you didn’t repay. Thereby, it will take more time to repay your credit card debt by shelling out a huge amount of interest.
Your credit score starts reducing
If you have maxed out your credit cards, your total outstanding balance amount is likely going to be a huge one. Besides, you can notice a drop in your credit score too. Because maxing out credit cards increases your credit utilization ratio which accounts for 30% of your credit score.
The credit utilization ratio is the amount of credit that you are currently using to the total available credit to you. The rule of thumb says that you need to keep your credit utilization ratio within 30% to maintain a decent credit score.
So, maxing out your credit cards can result in an accumulation of an incessantly high outstanding debt amount. And your credit score is likely going to take a hit. So, don’t max out your credit cards and try to keep your credit utilization ratio within 30%.
The bottom line is, after going through the above points, if you feel that your debt is going out of control, no need to worry. You can get rid of debts by some effective ways like stretching your budget or opting for a side hustle to dedicate more funds towards debt repayment.
However, if you think that you need professional help regarding this, you can opt for debt relief programs offered by a reputable debt relief company to get rid of your debts with ease and lead a debt-free, hassle-free life ahead.
Author’s Bio: Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has started her financial journey long back. Good Nelly has been associated with Debt Consolidation Care for a long time. Through her writings, she has helped people overcome their debt problems and has solved personal finance related queries. She has also written for some other websites and blogs. You can follow her Twitter profile.
