Warning Signs Your Debt Is Becoming Unmanageable

While many people strive to be completely debt free, debt is just a normal part of modern life. Student loans, mortgages for homes, and car loans are a necessity for most people to live the life they want. These types of debt are fine to have. However, for some debt becomes unmanageable. They fall behind on payments and it soon feels like they will never catch up. It is important that you are able to recognize when your debt is becoming unmanageable, as doing so will allow you to take action before it is too late. Let’s take a look at the most obvious warning signs so that you can protect yourself.

Warning Sign #1: You Are Only Making Minimum Payments

Every loan has a minimum payment. This is the minimum amount you are expected to pay each month. However, doing this is not recommended. When you only make the minimum payment, you are mostly paying interest, with the principal loan amount remaining about the same. If you only make minimum payments, most loans will take years to pay off. This is especially true of credit card debt.

If you find yourself only being able to make minimum payments on your debts, that is not a good sign. It means that you have gotten yourself in too much debt and that it will be very difficult for you to make any substantial progress in paying them off.

Warning Sign #2: Credit Card Balances Keep Increasing

Ideally, you should be paying off your credit cards every month. Doing this will minimize the amount of interest you have to pay, saving you a lot of money in the long run. Of course, it’s ok to carry a balance over to the next month every once in a while, but you should by no means make a habit of it.

The worst case scenario is if your credit card balances are increasing every month. This means that your monthly spendings are exceeding your earning. This makes it extremely difficult, if not impossible, to build savings and pay down debt.

Warning Sign #3: You Are Frequently Late on Payments

All payments should be made on time. Whether it’s your mortgage, car payments, credit card payments, or utility bills, punctual payment is key. Late payments result in late fees and can damage your credit score. If you are frequently late on payments, that means your debt is becoming unmanageable. It won’t be long before a collection agency is calling you.

Warning Sign #4: Collection Calls and Letters Are Becoming Common

Collection calls and letters are not a good sign. These do not happen because you’re a couple days late on a payment. They happen because your account is now considered seriously delinquent by the lender. If you are frequently receiving collection letters or calls, your debt has truly become unmanageable. Furthermore, these collection efforts usually cause feelings of stress and anxiety. The Fair Debt Collection Practices Act (FDCPA) limits the actions debt collectors can take, but that does not stop them from creating an atmosphere of stress and fear.

Warning Sign #5: You Have No Emergency Savings

Everyone should have an emergency savings account. This acts as a parachute that can keep you safe should you be fired or injured. According to Wells Fargo, your emergency savings should be at least three to six months’ worth of expenses.

When you don’t have emergency savings, any unexpected expense creates serious financial strain. Oftentimes, you will end up having to place that expense on a credit card, increasing your debt and making it more unmanageable.

What to Do If Your Debt Is Becoming Unmanageable
If your debt is becoming unmanageable, you do have options. These include:

● Creating a Budget: A budget will help you control your spending. Done early enough and correctly, you should be able to start paying down your debt.

● Debt Settlement: This is when you offer to settle a debt in one lump sum payment. Many lenders are open to this.

● Bankruptcy: If your situation is truly unmanageable, bankruptcy might be your best option. Declaring bankruptcy allows you to wipe the slate clean in a way and start fresh. If you go this route, make sure to hire an experienced bankruptcy lawyer to help you.

Evaluate these options and decide which is best for you. No matter how unmanageable your debt becomes, there is always a way out from under it.