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Excessive Debt: How To Deal With It

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Debt is an absolute wealth killer that doesn’t only eat up a major chunk of your money but also takes a massive toll on your credit score and ratio. This can make things even harder for you when you wish to apply for new financing, especially when you are trying to get the best rates and terms.

How can you tell though, if you have too much debt on you? In other words, what are the actual tell-tale signs that point towards high amounts of debt?

5 Red Flags That Point Towards Excessive Debt

Having too much debt on your plate can result in a multitude of other finance-related problems like the growing need to borrow money, making late  payments, and inability to save emergency money, to name a few.

Here are a few clear and evident warning signs that show you are dealing with too much debt.

You Have Little to No Savings

Most people have an emergency fund ready to be used in times of sudden and unforeseen financial crises. This can include anything from an unexpected stay at the hospital or a major car repair. Having a go-to fund of this kind is also a sign of great financial health and circumstances.

However, if you have excessive debt on your plate; chances are that you have little to zero savings in your account. A clear sign that you are biting off more than you can chew is that all your monthly disposable income is being spent on debt payments rather than investing it in a savings-fund for the future.

If that’s the case with you, perhaps, it is time to start saving for the future, as well as for unexpected life crises. Needless to say, life is unpredictable and can throw any kind financial obstacle your way.

You Can Only Manage Minimum Payments

If you find yourself barely being able to afford the monthly cycle of payments, you should know that you are stuck in excessive debt.

According to Martin Lynch, who is a certified credit counselor, one of the first few signs of realizing that your debts have gone out of control isn’t exactly missing a payment, but is when your account balance doesn’t allow you to make the payment within three to five months.

If your strategy is to pay the bare minimum each month, that is not likely to work well as an effective strategy because you will eventually shell out way more than the initial balance in your account. This is a result of high interest rates, which, least to say, are inevitable. Although you can always give the credit company a call and request them to lower your interest rates, but that is probably only going to happen if you have a good history and relation with the creditor, that is, you’ve been making your payments on time.

You Have an Incredibly High Debt-Income Ratio

Debt-to-income ratio is simply defined as your ability to fulfill your loan payments every month. In other words, it is a measure of how much debt you have against your income on a monthly basis. If your debt-to-income ratio is way too high, say, above 43%, it is a clear sign of you dealing with excessive debt.

The statistics of this ratio basically help lenders help understand how much money you typically make and how much you owe in debt payment. Both these factors together further indicate if whether you are able to repay any new debt.

Your Have Maxed Out Your Credit Cards

A simple explanation of maxing out your credit cards is that now you have zero credit available on your card. This ends up sending your credit utilization ratio through the roof because this ratio is a very important measure of your overall credit score. The ratio also underlines how much you are currently utilizing from all the available credit.

If you have maxed out your credit cards, you are obviously suffering from excessive debt because your credit score takes a major hit when you are unable to manage your debts efficiently and responsibly.

You Always Make Late Payments

Naturally, when you have a lot of debt to worry about and repay, it will be hard for you to keep up with your overall monthly payments. Most lenders allow people to make late payments, also known as delinquent payments, every once in a while. However, you can’t always have that option if you are constantly making late payments.

Regular late payments are a solid indicator of your inability to make your due payments because obviously, you can’t afford to pay your bills and fees when they are essentially due.

This cycle of late payments is yet another warning sign of dealing with excessive debt. Making late payments is one thing, but if you are more than thirty days late, your creditor can actually file a complaint against you to the credit bureaus. If anything, this will worsen the entire situation for you and your credit score will inevitably suffer from yet another major hit.

What to Do When You Have Excessive Debt

If either of the above signs rings true for you, it is time for you to confront this grave financial crisis and seriously work toward getting your debt back under control.

Cut Down Your Spending

One of the most commonly suggested strategies for dealing with large debts is to cut down your expenses. These are those expenses that are absolutely unnecessary and you can easily eliminate them in order to decrease your overall expenditure. One way to do this is go through all your credit card statements and take note of which expenses you can possibly remove from there. This can include things like expensive dining out or needless subscription boxes.

Try Earning Extra Cash

Another way to get excessive debt under control is by possibly starting a side gig to bring in more cash flow.  Often times, your monthly income tends to be insufficient in terms of being able to spend and save at the same time. In such circumstances, you might need to earn some extra cash through work gigs that you do on the side.

See a Credit Counselor

If all else fails, consider meeting with a credit counselor who will help you come up with efficient and effective strategies to tackle your high debt ratio. They can even set up a debt management plan for you, which is likely to help you during tough financial crises.

It all boils down to the fact that you must recognize these signs as soon as possible. The sooner you realize that you are dealing with too much debt, the quicker you will be able to carry out effective measures to modify your spending and keep your debt levels under strict control.

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