If your debt is getting out of control, you need to develop a strategy for paying it off and get yourself back on track to financial solvency and help you sleep at night. Your strategy may include contacting your creditors and rescheduling the payment of your debts. You may also be able to replace high-interest-rate debts, such as credit card balances, with a home equity line of credit or personal loan at a lower interest rate. Consolidating some of your debts also allows you to replace several monthly bills with a single loan payment.
Consider taking action on your debt load if any of the following statements applies to you:
- You can only afford to make minimum payments on your credit card bills
Most of that payment is interest. It may take you decades to pay for your purchases with this approach.
- You pay off one card or creditor by borrowing from, or taking a cash advance against, another
Borrowing from Peter to pay Paul will only create more debt in the end. And cash advances are much more expensive than other credit card debt.
- You are maxed out or over the limit on more than one credit card
Most companies penalize you with additional fees if you go over your credit limit.
- You never pay off your entire credit card debt
You strategize about who gets paid each month.
- You put day-to-day expenses on credit
You are charging necessities such as your groceries and gas.
- You have to earmark more and more of your income for debt repayment
Professionals suggest that you should be spending no more than 20 percent of your monthly income on repaying debts (not counting your mortgage or rent payments). If, for example, you spend $1,000 per month on debt repayment and your monthly income is $3,000, you’re spending more than 33 percent of your income on debt repayment. That’s way too much.
- You often pay your bills late
Everyone comes up short occasionally. But you have to triage your bills every month.
- You have insufficient emergency reserves to cover a financial setback
You live paycheck to paycheck, and your savings have long since disappeared.
- You find yourself fumbling to find a credit card that works and post-dating all your checks
You never know which card will be declined or which check will bounce.
- You apply for new credit cards with low introductory rates, and transfer your debts to them
This can be a short-term solution, but eventually, the debt will catch up to you. Plus there may be a fee for transferring your debts. And after the introductory period, the interest rates can skyrocket.
- Bill collectors are calling
Whether they are calling you or sending you mail constantly this is a strong sign that you are in over your head.
- You don’t know and don’t want to know how much money you owe
You avoid the mailman. As for actually opening the bills, forget it.
- You lie about your debts
You may still be keeping the truth from your spouse.
If any of these statements applies to you, it’s time to take control now. The first thing you should do is throw your credit cards away, stop spending on anything but essentials and devote all your disposable income to paying down debt.