Right up until coronavirus gave the American economy an acute case of double pneumonia, the U. S. economy was on a multi-year tear. Jobs and wages up, unemployment down, the stock market shattering records, sending retirement accounts soaring.
Alongside all this good news, there was another record that should cause everyone to pause: at the end of 2019, household debt in the United States reached a record $14 trillion (that’s a T).
Household debt surged by $601 billion in all of 2019, the lion’s share in mortgages. Nevertheless, credit card debt also reached a record high, reaching $930 billion, increasing by $46 billion in the fourth quarter, according to the Federal Reserve Bank of New York.
Should we worry? That depends. Prior to COVID-19, the majority of us were in a better financial situation to handle our debts than we were in 2007, right before the Great Recession. But well before the Great Quarantine of 2020, delinquencies were on the rise (to 5. 32% from 5. 16% in 2019’s third quarter). Burrow in and you discover young borrowers (18-29) had a delinquency rate of 9. 36%, 76% higher than overall delinquencies.
Statistics are just that. Debt trouble visits every age group, for any number of reasons. And there are traditional measuring sticks to help consumers decide if they’re in, or nearing, trouble.
Your debt-to-income ratio is one of the most important metrics. Add up all of your monthly debt payments (credit cards, mortgage, personal loans, auto loans, and rent), then divide the total by your monthly gross income. Multiply by 100 and, voila, there’s your DTI percentage.
Traditionally, a DTI up to 28% is considered healthy. However, you don’t need our assistance to realize that there is an issue if your DTI consists of only making the minimum payments on your credit card debt.
Debt can be a sneaky beast. It gradually consumes you until you find yourself drowning in debt and interest payments. Fortunately, there is still hope! By identifying the warning signals early on, you can restore your financial situation before it’s too late.
So how can you tell if you’re in trouble? Here are four telltale signs that you may be having financial difficulties:
1. You’re constantly playing catch-up.
If you’re constantly struggling to make your minimum payments, it’s a sure sign that you’re borrowing more than you can afford. This can lead to a vicious cycle of debt, where you’re constantly using new credit to pay off old debts.
2 You’re using credit cards for everyday expenses
Credit cards are a convenient way to pay for things, but they can also be a slippery slope to debt. If you’re using your credit cards for everyday expenses, it’s a sign that you’re not living within your means.
3. You’re avoiding your bills.
If you’re dreading opening your mailbox or checking your bank account, it’s a sign that you’re avoiding your financial problems. This is a dangerous path to take, as it will only make your problems worse.
4. You’re borrowing money from friends and family.
You’re in over your head if you’re borrowing money from friends and family all the time. This may strain your relationships and make debt relief even more difficult.
What to do if you have a debt problem?
If you’re experiencing any of these warning signs, don’t panic! There are steps you can take to get your finances back on track. Here are a few things you can do:
1. Create a budget.
The first step to getting out of debt is to create a budget. This will help you track your income and expenses, and identify areas where you can cut back. There are many budgeting apps and tools available online, so find one that works for you.
2. Reduce your spending.
Once you have a budget, you need to start reducing your spending. This may mean cutting back on unnecessary expenses, such as eating out or going to the movies. It may also mean finding ways to earn extra income.
3. Pay down your debt.
Once you have a budget and have reduced your spending, you can start paying down your debt. There are many different debt repayment strategies, so find one that works for you. Some popular strategies include the snowball method and the avalanche method.
4. Seek professional help.
If you’re struggling to get your finances under control on your own, don’t be afraid to seek professional help. There are many credit counseling agencies and financial advisors who can help you create a budget, develop a debt repayment plan, and negotiate with your creditors.
Remember, you’re not alone.
Millions of people struggle with debt every day. But there is hope. By taking action and seeking help, you can get your finances back on track and achieve your financial goals.
Additional resources:
- National Foundation for Credit Counseling: https://www.nfcc.org/
- Consumer Financial Protection Bureau: https://www.consumerfinance.gov/
- Debt.com: https://www.debt.com/
Don’t let debt control your life. Take action today and get your finances back on track!
How Do I Choose?
As previously mentioned, if you experience one or more of the above symptoms, you can attempt to resolve the issue on your own.
Or you can get started by consulting with the credit counselors at InCharge. You don’t have to worry about looking foolish because they’ve heard far more terrifying tales of financial hardship or poor management than you have.
Counselors at InCharge are adept at seeing you for the unique person you are and the personal stake you have in making things right. They also have the expertise to guide you to the debt-relief solution that is best for your situation.
Are There Other Signs?
Are you subject to debt collectors? Do you carry multiple payday loans? Do you regularly make partial or late payments? Do you bounce checks more frequently than once a year (or do you frequently rely on overdraft protection)?
These, too, are signs you might have a debt problem.
4 Warning Signs of a Debt Problem
FAQ
When should I be worried about my debt?
What does debt do to a person?
What is debt stress syndrome?
How do you know if your debt is a problem?
Typically, lenders like to see a DTI under 36 percent. So, if your monthly gross income is $3,000, your monthly debt payments shouldn’t exceed $1,050. Greg McBride, Bankrate chief financial analyst, says that one simple way of knowing if your debt is becoming a problem is if your total balances are going up every month instead of coming down.
How do I know if I have a high debt-to-income ratio?
Looking into your debt-to-income ratio can help answer your question. Add up your monthly debt obligations (things like auto loans, housing payments and credit card bills) and divide it by your monthly gross income. Debt loads in excess of 36% DTI can be difficult to pay off and can make accessing credit more challenging.
How do I know if my debt is getting out of control?
Relying on credit for everyday expenses: Using credit cards for things like groceries, gas, and bills can lead to more debt. Borrowing from one source to pay another: Taking out a loan to pay off another loan is a sign that your debt is getting out of control.
Do you have a debt problem?
If you can’t create a budget that balances and is realistic, you might have a debt problem. Lenders, including credit card companies, are in the business of getting paid back. Too much debt can scare off potential lenders who doubt your ability to pay them back, triggering credit denials.