Signs that Your Credit Card Debt Has Spiraled Out of Control
Most people don’t rely on cash these days as much as in generations past. Today, a credit card that you can swipe whenever you want feels so much easier than stopping by the bank or an ATM to make a cash withdrawal. The only problem is, however, that paying with a credit card also makes it easy to ignore how much we're spending or even consider how much we actually have in our checking accounts, especially since you can always open more cards and increase your credit limit. It almost feels like free money! It comes at a price, however, and you don't want to set yourself up for failure when your monthly credit card statement arrives. Here are the top signs that your credit card debt has gone from normal and manageable to completely out of control.
- You can only afford the minimum payment. Ideally, you should be able to pay off your credit card in full each month. The minimum payment is just the minimum amount that you need to pay your credit card company to remain on good terms. If you can't pay more than the minimum amount and you're continuing to use your credit cards, this is a really bad sign.
- Your credit score is falling. It's a good idea to know your credit score, which you can either get for free with your statement each month or via an app like Credit Sesame. Generally, a score above 700 is considered good. If it starts dropping, it indicates that you're more likely to default on credit payments, making you less creditworthy.
- You don't have any savings. If you are spending so much money to pay off your credit card debt that you're unable to save anything, this is also a sign that your credit card debt has gotten out of control and you may be living beyond your means. Ideally, 20% of your income should go towards savings.
- Your credit cards are maxed out. If you find yourself going to the store only to have your credit cards declined one after another, this is a big problem. Even one maxed-out credit card is too many. Know your credit limits and don't overspend.
- You have to rely on credit cards for everyday necessities. If you don't have enough money in your bank account to use your debit card or cash to pay for groceries or gas, you need to reconsider your budget. Credit cards should be used as part of a smarter long-term financial plan, such as by building credit and accruing rewards. They should not be a way to purchase things you need just because you don't actually have enough in your bank account. This sort of mentality will lead to trouble when your credit card statement comes in the mail, and it's time to pay up.
- You're missing your payments. If you are completely missing your credit card payments or even making late payments, your credit score is going to drop, and you're going to be charged late fees. Your interest will start climbing and make the situation even worse. Don't let yourself get to this point.
- New credit card applications are denied. While it may have once seemed easy to apply for and be issued new credit cards, if a credit card company starts denying you new cards, beware. This is a bad sign, meaning the company has predicted that you can't be trusted with paying back your credit card debt. They should send you a letter citing why you were declined. Read it carefully for added insight.
- You're taking out other loans to pay off your credit cards. Maybe you're taking advantage of payday loans or cash advances. Perhaps you're utilizing balance transfers every chance you've got. If this sounds familiar, you are indebting yourself even further. If you're repeatedly doing these things, it's time to stop.
- You're having anxiety about paying off your debt. Maybe your heart starts racing, your mind is spinning, and you can't sleep at night. You may feel sick to your stomach, get tension headaches, and other physical symptoms associated with stress and worry. You're afraid even to open your credit card statements and are ashamed to tell your family. Take this is a sign that you need help. You shouldn't have to feel this way.
Tips for Regaining Control of Your Credit Card Debt
- Create a budget for yourself. Take a hard look at how much money you earn and where you're spending it. Aim to spend 50% of your income on necessities, 30% of income on nondiscretionary items (things that aren't necessities), and 20% on savings.
- Find out how much you really owe. Open up all of those credit card statements and make a list of how much you actually owe in total, as well as interest rates.
- While you're paying the minimum payments on all of your cards, choose one card that you can put extra money towards in order to completely pay off that debt. You may choose the one with the smallest balance or the highest interest rate. Once you finish paying off that first card, you'll feel motivated to tackle the other cards one at a time.
- Find more ways to save. You may need to change your lifestyle so that you can save more money, which in turn you can dedicate towards paying down your credit card debt. For instance, instead of buying coffee out, make it at home. Choose free forms of entertainment. Cook more instead of going out to eat. Resist the urge to buy new clothes when you have a perfectly good wardrobe in your closet at home.
- If you really can't stop using your credit cards, cut up all but one to keep in case of emergencies.