Several Signs Debt Is Taking Over Your Life
Debt is a double edged sword. There is the debt that you may need to incur to get ahead, and there is the debt you may incur that can really set you back. You may seek out debt in the form of a home mortgage, or you may acquire a loan for starting a business. This sort of debt is favorable for the idea that it will actually, in time, gain you some wealth. You will have equity in them, and ideally, if they needed to be liquidated, those assets could be turned into money to pay back a debt. On the other hand there is consumer debt based on the things we buy to consume, and these things begin lose their value as soon as we buy them. They are things like cars, electronics, clothes, etc., and once consumed the debt can remain. Experts agree that there is a limit of how much is too much. The rule states that monthly payments on debts (not including a home mortgage) should not exceed 20% of take home pay. It is not typically the debt principal where people get into an economic bind, but the principal compounded with interest, and spread over too short an amount of time, causing un-manageable monthly payments.
When this sort of debt becomes overwhelming, and you begin to struggle with payments, it may be time to take action. There are several signs you should be conscious of, and not ignore until it is too late.
Credit Card Application- DENIED!
A bad sign that you may have reached your maximum limit on debt that can be comfortably managed is if you have applied for new credit, as in a credit card, and been turned down. What lenders look for in a borrower or when underwriting a new loan, is the current debt load. Conversely, if you are still garnering favorable credit, then that may be an indication that your credit is well managed. Here is what Wells Fargo has to say in their Five C’s of Credit:
“Lenders need to determine whether you can comfortably manage your payments. Your past income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered. The ratio of your current and any new debt as compared to your before-tax income, known as debt-to-income ratio (DTI), may be evaluated.”
Can I Have Just a Few More Days?!
If you find yourself becoming consistently late on payments, needing extensions, and having to wait until payday, you may be shooting yourself in the foot. When creditors don’t receive their money in a timely fashion they like to charge extra for that. Compounded interest can make it doubly difficult to get out of debt, or even keep it at a manageable level. If you are using credit to pay off credit there is a very good chance you have already gotten into a bit of trouble. Be very wary of using credit cards to pay debt.
Paycheck to Paycheck
Are you able to put away any money from your paychecks for a rainy day? If you are having trouble putting together a little buffer for financial trouble, much less savings for the future, there is a pretty good indicator that your debt level is becoming too much. This is known as Debt to Income Ratio or DTI. Essentially it is the percentage of your monthly gross income that goes toward paying your bills and living expenses. Living costs money, and saving means that your income level is higher than your living expenses. If month after month, you find yourself unable to save a little, you may want to look a little closer at your debts and start thinking of ways to lower them.
How Low Can You Go!
If you make your monthly payments on time and you enjoy the serenity of never receiving debt collection calls, you are doing a good job. If you can pay a little more on that monthly payment, you will actually save money on the interest, whittle down the principal, and pay off the debt faster. You might be surprised that a little can go a long way. If you can not afford to add a little extra every month to pay down your debt, it is not the end of the world, but it is a sign that you are close to being over extended in your debts.
I’ll Just Turn My Ringer Off…
One glaring, unignorable sign that you have unfortunately become inundated with debt is that you are receiving non-stop calls from your not biggest fans. You are the recipient of demeaning demoralizing, dehumanizing, collection calls. Day. Night. At home. At Work. On your cell. At your Moms. It can feel like collectors are waiting in the bushes ready to pop out demanding a payment. This is one undeniable symptom of being behind in payments, or underwater in your debt and this will continue until you take action . There are things you can do to stop harassing collection calls and remember, if you are considering filing bankruptcy, once you file, all collection attempts must cease. Here is a link to information regarding debt collection calls.
The Mind-Body Connection
Here is some food for thought. If you are experiencing anxiety or having trouble sleeping because you can not escape thoughts about your accumulating debt, it is reasonable to assume that your debt is becoming bad for your health. Your health is the most important thing you have. If you are worrying about supporting a family or if your debit card is going to be rejected at the supermarket, or your wages are going to be garnished, etc., you are causing your psyche undue stress. This can lead to actual physical stress, and opens the door for health problems to arise because of it. If this is happening to you, it is definitely time to take action; because your family needs you, and you need peace of mind. Other debt stress symptoms you should not ignore are heartburn, headaches, or abdominal pain. Debt Stress is real and it can be helped.
Help is a Phone Call Away
Only you can decide how much debt is manageable for you to handle. These are just some of the signs that it may be time to do something to change your financial situation. You may wish to try out a debt calculator to help you make a determination. You will need to calculate the percentage of your monthly take-home pay that goes toward paying consumer debt. Add all your debt payments together (NOT YOUR MORTGAGE) and divide this by your monthly take-home pay. If it is 15% or more you may have too much debt and should consider taking steps to reduce it. Here is a link to an online debt calculator.
If you would like to speak with a knowledgeable bankruptcy attorney, who handles only bankruptcy cases, and has over 30 years experience in bankruptcy law, please contact Robert H. Pflueger at Orlando Bankruptcy Law. He would be happy to consult with you about your finances and help you determine if bankruptcy is right for you.