Along with nasty weather, the beginning of the year can bring stress over mounting credit card debt. Is your debt hangover merely a symptom of the season, something you’ll be able to recover from easily? Or is it a bigger problem that could put your overall financial health at risk?
If you’re able to pay off your credit cards in full most months and have money left over to save, your debt probably isn’t going to threaten your overall financial health. But if your credit card debt is growing, explore how to deal with it.
Not sure where you stand with your debt? Check out this list of warning signs. If you can say “yes” to one or more of them, start dealing with your debt before it gets out of control.
1. Your Debt Is Growing Each Month
Leaving holiday spending out of the picture, if you’ve been carrying a balance on your cards and that balance has been increasing, you are at risk of falling deeper into debt. As the carried balance grows, you’ll be forced to pay more in interest (and potentially in late fees if you miss a payment). Your payments each month, even if they are higher than the minimums, will make even less of a dent into the principal. Your debt will keep growing, potentially beyond your ability to pay it back.
2. You Can’t Keep up With Minimum Payments
If you pay only the minimums on your debt, it could take you years or even decades to clear your debts. And if you’re struggling to even make those minimum payments, you’re going to lose ground rapidly. Your credit score will begin to drop because your debt-to-income ratio is too high. This can hurt your long-term financial health and leave you with fewer borrowing options for getting out of debt down the road.
3. Debt Stress Is Affecting Your Health
While a large debt burden causes poor financial health, it can also cause physical and mental health issues. According to the Mayo Clinic, depression and anxiety over mounting debt can lead to symptoms including insomnia, headaches, high blood pressure, and panic disorders—all of which can seriously affect long-term health.
4. You Took on Debt to Pay Debt
Taking out a personal loan can be a smart strategy if you can get a low interest rate, favorable payment terms, and are able to afford monthly loan repayments. But when you take out a personal loan to pay off credit card debt, remember that you’re not getting out of debt—you’re just moving it around. If your debt is caused by bad financial habits or job loss, a personal loan won’t address these problems and will only add one more debt to your life.
5. You’re Unable to Save
According to most financial experts, it’s wise to have a six-month cushion of funds to cover emergency events like job loss or unexpected expenses. If you’re unable to save and you’re living paycheck to paycheck, it’s time to adjust your budget. Find expenses you can cut or reduce, so you can have money left over to put into a savings account.
6. Debt Collectors Are Calling
If you’ve fallen behind on payments and debt collectors are calling you nightly, this is a big sign that your finances are out of control. Your credit score is also probably hurting at this point, so it’s time to start seeking solutions. One option is to look for ways to consolidate your credit cards to streamline your monthly payments.
If any of the above warning signs hit home for you, try not to blame yourself. Instead, focus on the fact that you’re taking your first step now by identifying that you may have a problem.
Figuring out how to get out of debt can be very overwhelming, which is why we put together a free “How to Manage Debt” guide to help you get started. Download it now to learn your options and find the right solution for you!