Signs You Have Too Much Debt

Debt is a problem for many Americans. Student debt, credit cards, and auto loans fall within the rubric of consumer debt. Student debt can contribute to more income over time, but other examples of consumer debt do nothing outside of costing more money because of interest payments. Here are some signs that people are carrying too much debt.

You Can’t Pay More Than The Minimum

Debts come with minimum payments. Many credit cards require a small payment of 1% or 2% of the principal balance. This means that it can take several years to pay off even a small debt of $1,000. Most people can come up with a few hundred bucks to pay off a small debt relatively quickly, but when there are small debts on several cards, the minimum payment alone can become cumbersome to make. When it’s difficult to pay more than the minimum payment, it’s a sign that too much debt has accumulated. A balance transfer to a credit card with an interest-free introductory rate can help a borrower take a bite out of the debt more quickly.

Your Credit Cards Are Maxed Out

When there is no more credit available on any card, it’s another sign that a household has too much debt. Banks are willing to extend credit to people who appear to be worthy of that credit. However, higher limits can be an invitation to spend more. Those with several cards can see their debt grow, and over time, they can get to the top of their credit limits. When this happens, it’s another sign that there’s too much debt.

It’s Impossible To Build An Emergency Fund

A robust emergency fund is an important hedge against credit card debt. When an unexpected expense comes up, an emergency fund can handle the bill. Those without an emergency fund will usually wind up reaching for a credit card when they have an unexpected bill. If it’s hard to build up an emergency fund, it’s a sure sign that there is not enough margin in a household’s monthly budget. This could mean that it’s time to cut down on common expenses to put more money toward debt so that more money can go toward an emergency fund.

Interest is a drain on household finances. It’s an unnecessary expense for those who make enough to pay for items in cash. Those who find themselves in major debt would do well to find an opportunity to consolidate their debts at a lower interest rate to free up more of their monthly cash flow.