Learn About Credit Card Debt
10 Signs You're Headed for Trouble
Americans have more than $4.2 trillion in outstanding debt, with credit card debt accounting for more than 25% of that amount according to the Federal Reserve. Consumer confidence often leads to heavier credit card spending and it's not always obvious when debt loads get too high. Fortunately, there are some ways to tell when your credit card spending is getting out of control.
You Use Credit to Meet Basic Needs
Your wages and earnings should be used to buy everyday items like food, clothing, and gas, not your credit card. Having to use credit cards to cover these types of purchases is a sign of financial trouble. Sticking to a monthly budget and being diligent about living within your means can reverse your trend toward credit card debt.
You Transfer Balances to Avoid Credit Card Payments
There are times when a credit card balance transfer makes sense, like to consolidate credit card balances or to get a lower interest rate. However, frequently transferring balances instead of paying down your balances is a red flag. You must figure out a way to make your regular credit card payments before you run out of credit cards to transfer balances to.
Each time you transfer a balance, a balance transfer fee is tacked onto your balance, increasing the overall amount due. Repeat balance transfers become more expensive as you continue adding a fee to your balance.
You Skip One Credit Card Bill to Pay Another
Prioritizing credit card payments is wise for ensuring you're paying your credit cards in the most efficient way. However, prioritizing payments doesn't mean skipping some bills in favor of others.
If you consistently find yourself too strapped for cash to make your credit card payments, you're likely already in credit card trouble. Too many skipped payments will damage your credit and leave you with fewer options for handling your debt.
Rather than miss a credit card payment—or any other payment—contact your credit card issuer to discuss the hardship options that are available. Many are willing to work with you to lower or waive your payments temporarily.
You Charge More Than You Pay
If you're charging more than you're paying, your credit card debt will always continue to increase. It's simple math—your balance never has the chance to go down because you continue to accumulate debt. Eliminating new credit card purchases is essential to avoid getting deeper into credit card debt.
You Don't Have an Emergency Fund
If you don't have an emergency fund, you'll feel forced to use your credit card in emergency situations. Credit card debt created because of large, unexpected expenses can be hard to pay off, especially if your budget is already stretched. You can build an emergency fund by saving a small amount each month, consistently.
You Don't Have a Plan to Pay off Your Credit Card Debt
The adage says "Failing to plan is planning to fail." If you're not actively working to pay off your credit card balances, you could end up unnecessarily paying on the cards for years to come. Whether you have excessive credit card debt or not, you should always have a plan to pay off your balances.
You Use Credit to "Afford" Expensive Items
The allure of credit is that it tricks us into thinking we can afford to buy more than we really can. Truth is, only extra income or lower expenses (or both) truly enables you to afford more expensive items. Incurring credit card debt to maintain a lifestyle you really can't afford isn't a wise decision for your future income.
You Have Past Due Accounts
If you have credit cards that are currently past due, you've probably run into unfortunate financial trouble that's keeping your from making payments. Remember, the more past due your accounts become, the harder it will be to bring them current again as fees get tacked on. Take a look at your monthly budget and expenses to see how you can get back on track with payments.
You Have Maxed out Credit Cards
If your credit cards are all maxed out, you're not headed for credit card debt, you're already in it. What now? Make a decision to pay off your credit card debt and to make wiser choices about using your credit cards in the future.