Most people have to acquire some debt to afford things such as a home, car, college or other significant purchases. But while some debt is typical, it isn’t always easy to realize when it becomes more than you can handle. Here are five common signs your finances are headed for trouble:
1. You aren’t sure how much debt you have
If you don’t even have an idea of how much total debt you have, it’s a sign that you at least aren’t on top of your finances. It could also suggest that you know your debt is a problem but aren’t yet ready to face it.
2. You can’t afford more than the minimum payment on your credit cards
If you are only making the minimum payments on your credit card balances each month, you are likely stuck in an endless cycle of revolving debt. For example, an individual with $5,000 in credit card debt that pays only the $200 minimum payment each month will end up paying more than $8,000 and it will take them nearly 13 years to pay off the debt.
3. You continue to make purchases on a credit card you’re still paying off
When it comes to credit card debt, it’s best to pay off your balance in full each month or pay enough to whittle down your balance over time. But if your credit card balances keep rising while you are trying to pay them off, your financial problems are rising, too.
4. You have at least one credit card that is near or over the credit limit
All credit cards have a credit limit. If one or more of your credit cards are maxed-out, it suggests that you have some trouble managing your spending. What’s worse, is having multiple maxed-out credit cards can be harmful to your credit score.
5. You have no emergency savings
If you find it difficult to find money to set aside each month for your savings, it could be a red flag that your debt is preventing you from building an emergency fund. For example, if an unexpected car repair would mean you couldn’t cover your bills, your finances may be in trouble.
If the signs above sound like your financial situation, it’s important to start acting as soon as possible. Get an idea of how much debt you have and reassess your spending habits to see where you can make some changes. By focusing on reducing your debts over time, peace of mind won’t be far behind.