If youre like many Americans whove seen their debts rise in the last year, you might be wondering if your payments are unsustainable — and what you can do about it.
If you have a lot of debt, youre not alone: The average debt balance, including big-ticket items like mortgages, student loans and auto financing, climbed to $101,915 in 2022, per credit bureau Experians most recent data. For just credit card debt, the average amount is $5,910. For just student debt, its $39,910.
But the amount of the debt matters less than your ability to pay it off. A low 3% interest rate on a student loan or mortgage would likely be easier to tackle than credit card balances with interest rates over 25% that swallow up every spare dollar. Your income also plays a role in your ability to pay off debt.
Debt is a normal part of life for most people. After all, few of us have the cash on hand to pay for big expenses like a home, car, or college education upfront.
However it’s easy to fall into the trap of taking on too much debt without realizing it. Unchecked excessive debt can snowball into a major problem that impacts your financial health and stability.
If you’re wondering whether your current debt load is more than you can reasonably handle, watch out for these 10 warning signs
1. You’re Only Making Minimum Payments
When you can only afford to pay the minimum payment due on credit cards and other debts each month, that’s a red flag Minimum payments are typically quite low – often 2-3% of the balance
At that rate, it can take years or even decades to pay off debt, all while racking up interest charges. If most of your disposable income is going toward minimum payments, it’s a sign you have more debt than you can comfortably manage.
2. You’re Relying On Credit Cards For Everyday Expenses
When you have to whip out the plastic just to cover basic necessities like groceries and utility bills, it likely means you’re overextended. Credit cards are expensive, with double-digit interest rates. Leaning on them just to get by is a Band-Aid fix that only worsens debt problems.
3. Your Debt Is Growing, Not Shrinking
Ideally, you should be making progress toward paying down balances every month. If your total debt seems to creep higher instead, that’s a major red flag.
It likely means you’re continuing to overspend while making minimum payments. This debt snowball effect makes balances increasingly difficult to handle over time.
4. You’re Juggling Multiple Maxed-Out Cards
Credit cards have set limits, and maxing out even one card can hurt your credit score. Having multiple cards at their limit is a sign you may not be able to manage additional debt. It also leaves you vulnerable if an emergency expense pops up.
5. You Don’t Know Your Total Debt Amount
Not having a handle on exactly what you owe is problematic. It often stems from avoidance or “out of sight, out of mind” spending habits. Facing up to your full debt picture is an important first step toward addressing the problem.
6. You Lie About Spending And Debt
Debt can be an embarrassing topic. But covering up the truth from loved ones is a possible indication you know there’s an issue but aren’t ready to tackle it. Bringing problems into the light is key to finding solutions.
7. You’re Late On Payments
When you can’t consistently keep up with minimum payments in full and on time, that strongly suggests cash flow issues tied to excessive debt. Late fees also add insult to injury, making balances even harder to pay off.
8. You Use Credit To Pay Other Debts
Whether it’s credit card cash advances or new cards with intro 0% APR offers, relying on credit to keep up with payments on other debts is a temporary bandage. This cycle will repeat until spending habits change.
9. Your Applications For New Credit Are Denied
Lenders want to work with people likely to repay debts. Too high a debt burden can lead to rejections for new credit if lenders view you as a risk. This loss of access and flexibility creates a debt trap.
10. You Have No Emergency Savings
Finally, if every available dollar is going toward debt, you likely don’t have the emergency fund cushion you need. This leaves you vulnerable to new debt if unexpected expenses come up.
How To Address A Debt Problem
Excessive debt won’t fix itself; it requires effort and discipline. But there are proven strategies to dig out of a hole:
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Face up to your full debt picture. Make a list of all debts and minimum payments. Knowledge is power.
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Trim expenses. Free up cash to pay down debts faster by reducing discretionary costs.
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Pay more than minimums. Pay as much extra as possible on highest-interest balances.
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Consolidate debt. Consider balance transfer cards or loans to simplify payments at a lower interest rate.
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Talk to a credit counselor. Non-profit counselors can help manage payments and negotiate with creditors.
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Avoid new debt. Don’t dig the hole deeper by taking on additional credit.
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Increase income. A higher-paying job or side gig can provide more money to pay off debts.
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Liquidate assets. Sell unused items to generate funds to pay down balances.
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Develop a payoff plan. Having a debt reduction strategy with set repayment goals helps stay motivated.
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Track progress. Celebrate small milestones, like paying off your smallest debt first.
Excessive debt is common, but the sooner you recognize and address problems, the faster you can regain control of your finances. With discipline and commitment to change, you can eventually eliminate balances for good. Don’t let debt overwhelm you.
You’re consistently late paying your bills
If youre consistently late paying bills because you cant afford them, thats a tell-tale sign your debt is getting out of control.
Similarly, if youre consistently withdrawing from retirement savings or using a credit card to cover bills, you probably need to reassess your finances.
You’re opening new credit card accounts to help pay for older ones
One way to pay down credit card debt faster is through a balance transfer card that offers a 0% interest rate for a limited time, usually 12 to 21 months. Balance transfers are what they sound like: You move your outstanding debt balance from an old card to a new card, and with 0% teaser interest rates, you dont have to worry about interest payments, at least for a while. There are some downsides, however: Balance transfers require credit checks that can hurt your credit score and usually have fees of 3% to 5%, which can add to your debt burden. Plus, you can be rejected for low-interest balance transfer offers if your credit score is too low. And balance transfers only provide temporary relief — youll have to pay off that debt eventually.
Ultimately, “if youre opening low or no-interest rate credit cards to pay off other ones, you probably have too much debt,” says Noah Damsky, a chartered financial analyst at Marina Wealth Advisors in Los Angeles.
3 Warning Signs of Too Much Debt
FAQ
How can you tell if you have too much debt?
- Your consumer debts (credit cards, medical bills, personal loans) total half or more of your income. …
- Creditors are calling to collect payments. …
- You’re making only minimum payments on monthly credit card bills, and your credit cards are maxed out.
What is considered too much debt?
What happens when debt gets too high?
A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also can lead to increases in interest rates and inflation as well as erosion of confidence in the U.S. dollar.
How do you know if you have bad debt?
… can be defined as money you borrow for something that you quickly consume, depreciates in value or doesn’t help you make progress toward your financial goals