THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE SEE MY DISCLOSURES. FOR MORE INFORMATION.
Are you worried that you might have too much debt? If so, you are not alone. Millions of people struggle with debt repayment every day. Knowing when your debt has gotten out of control can be challenging, but there are a few warning signs to look out for.
Here are the 15 most common warning signs that your debt is out of control. By recognizing these signs early on, you can take steps to get it under control before it becomes a bigger problem. And the sooner you start working to become debt free, the sooner you can improve your finances and give yourself some breathing room.
#1. Your Credit Card Balances Are Growing Every Month
If your credit card balances are growing each month, that is a sign that you are in trouble. In an ideal world, you pay your entire balance when the credit card statements arrive in the mail.
But when you only make the minimum monthly payment, when your next bill comes in the mail, the balance you owe is even bigger. If you find it hard to make more than the minimum payments regularly, it is usually an early warning that you are heading down the wrong financial path.
#2. You Are Losing Sleep
Do you find it hard to sleep at night because you wonder where the money will come from to pay your bills? Or are you stressing about what bills are coming in the mail tomorrow?
Maybe you are scared that if an unexpected expense comes up, you won’t be able to pay for it. If that is the case, you’re not alone.
Money problems are one of the leading causes of stress and sleepless nights in America today. It can be hard to sleep when your mind is racing about how you will pay for all those monthly bills or if you have enough money to buy groceries.
#3. You Are Distancing Yourself From Others
Shame and embarrassment are real issues people in debt face. As a result, you might start pulling away from friends and family. You would rather be alone than spend time with others. Or you decline going out because you know you don’t have the money to pay for things.
But you don’t tell your friends you have a debt problem. Instead, you make up excuses about why you can’t go out.
#4. You Are Angry All The Time
Having a large debt load can also make you resentful. What is happening is you are mad at yourself, but you don’t want to admit it. So you take it out on others by being angry. It doesn’t make sense, but that is what happens.
If you find yourself suddenly becoming angry all the time, it could be a sign of a debt problem. This can lead to depression and other mental health issues if left unchecked for too long. You need to recognize this as an early warning sign and try to get your debts under control.
#5. You’re Hiding Your Debt From Others
Are you hiding money from your loved ones or your spouse? And by hiding money, I don’t mean it in a good way. You are hiding the things you buy or racing to get the mail to hide the credit card bills that came.
You might even change the subject when the topic of money comes up. If any of this sounds familiar, it is a sign that you are in trouble and must take steps to get your finances back in order.
Related: How to hide money before a divorce
#6. You Only Make The Minimum Payment
When your bills come, can you only pay the minimum monthly payments? While you might have more money in your checking account, you don’t want to pay too much because you know you have other bills that are coming due.
And you worry if you can pay the minimum payments on that debt if you pay extra on the bills in front of you. These complex financial decisions are too common for people with too much debt.
#7. You Struggle to Pay Your Bills on Time
Related to the point above, you might start missing debt payments and incurring late payment fees. Understand that everyone misses a payment and has to pay the late fees once in a while.
After all, no one is perfect, and life happens. But if you are making late payments regularly because you don’t have the cash to pay the bill on time, this is a problem you need to fix.
#8. Debt Collectors Have Started Calling You
One of the worse signs debt is out of control is having debt collectors reach out. Nothing is worse than being overwhelmed by debt and having the phone ring. Debt collectors are relentless and can make your bad financial situation feel worse.
Usually, this is a later sign than the others, so ideally, your debt won’t get to this point. But if you are at this point, you must take serious steps to get your finances in order.
Consider looking into free help like credit counseling or speaking with a bankruptcy attorney. They can often help you with debt consolidation that will lower your minimum payments to a level that you can afford to make them. This isn’t something to be ashamed of, and they can help you find the best way to get your debt situation under control.
#9. Your Credit Score is Dropping
As your debt problem builds up, your credit score will start dropping. This is because your credit utilization ratio will climb, and creditors prefer to avoid seeing this. For them, this is a big red flag.
How can you tell if your credit utilization ratio is high? Add up all the outstanding balances on your credit accounts and divide this by the total available credit limit of all accounts combined.
For example, if you have three credit cards, each with a $500 balance and a $1,000 credit limit, you would divide $1,500 by $3,000. In this case, your ratio would be 50%, which is high. Ideally, you want this number to be 30% or less.
The biggest issue with credit scores is that the interest rates on your debt will be higher. And the higher the interest rates, the more money you owe on your outstanding debt. Additionally, taking on new debt will have a higher interest rate, making it even harder to make your minimum payments.
#10. You Are Transferring Balances to Stay Ahead
Another warning sign of a debt problem is using a balance transfer on your credit card debt to stay ahead. In some cases, you might use these transfers as excuses and spend more as a result.
This is what I did. I was transferring balances from one credit card to another to save money on interest charges. But after I transferred my balance to the new credit card, I would start spending on the original credit card again.
The other problem was the balance transfer fee. This fee at the time was only 3% of the balance I transferred. But these days, balance transfer fees can be as high as 5% of the balance.
This pushed me into higher levels of credit card debt a lot faster because I had more credit cards to use. So while balance transfers are a great tool if used correctly, they can lead to additional credit card debt if you are not careful.
#11. You Are Denied Credit
Have you been opening a lot of credit cards and been denied? This could be the credit card companies telling you you have a problem. It goes back to the idea of your credit utilization ratio.
If creditors see this number climbing, they will be less likely to extend you more credit. While they enjoy making money off you through interest charges, they know that if your credit card debt gets out of control, there is a good chance you won’t be making your monthly payment, and they will have to fight to get the money you owe.
This is especially true if they notice you are maxing out your credit cards or getting close to it when looking at your credit report. If you have debt and are getting denied more credit, consider looking into this and see if it is because of your high debt levels.
#12. You Can’t Afford to Save
While most Americans aren’t great savers, the reality is if they wanted to save something, they could. But if your debt is out of control, you don’t have the option to save in the first place. Your monthly income goes towards paying your bills, and you don’t have anything to save.
Even if you were to save something in your emergency fund, chances are you would have to take the money back out of your safety net savings account to cover your bills. Another scenario is you were saving extra money most months, but now you can’t because that cash is going towards bills.
While this can occasionally happen, if you notice it happening for a prolonged period, you should take it as a sign something is wrong.
#13. You Start Using Cash Advances
If your debt is bad, you might need cash advances to help pay for things. This could take the form of tapping the cash advance feature on your credit card using convenience checks.
Or it could mean using a service to get your paycheck a few days earlier. You might even resort to a payday loan to keep you afloat until your next payday.
This is a sign that happens later in the debt process, so you want to pay attention and take action quickly if you notice it, primarily because of the interest rate this type of cash advance charges.
You can pay an interest rate anywhere from 20% to over 100%. This can lead to more debt faster than you can imagine. Finally, something many people don’t think of when they are borrowing money with a cash advance is that there is no grace period.
So the higher interest rates you pay start the day you get the money, not 25 days later. Because of this, you are better off borrowing money through personal loans if you get to this point.
#14. You Routinely Overdraft Your Bank Account
You may be getting hit with overdraft fees from your bank because you overspent your checking account. This could be from just trying to spend more than you have or because you have too many bills coming out at once.
You might also have your credit card denied when shopping. This usually happens when you get close to your credit limit on your card. The embarrassment you feel swiping multiple cards trying to find one that works should be another light bulb moment that something is wrong.
#15. You’ve Begun to Ignore Your Debt
Ask anyone in a lot of debt, and they will tell you they eventually get to the point of ignoring it. It’s not that they purposely ignore it, but they don’t know what to do about it. Maybe you are getting further behind, and you feel hopeless.
Or you already knew you were in a lot of debt and decided the best way to handle it was by not paying attention to any new mail from your creditors or voicemails. Or you might have decided to give up and stop paying your credit cards altogether.
This is a dangerous game to play because it will only lead to bigger and more expensive problems down the road. If you are ignoring your debt, it’s time to face it and act.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.