How much debt is too much? It can feel impossible to tell, especially since any debt can feel burdensome. But there are a few ways to tell that you have too much debt and that it’s time to do something about it.
Before you use a credit card or take out a loan, it’s important to determine if you can afford the payment. If it will put you over the edge, it’s too much. Here are some other ways to tell if you have too much debt.
You Use Credit Cards to Pay for Necessities
If you don’t have the money available to cover basic bills or things like groceries, you might have too much debt.
If you’re spending all your money making the minimum payments on your credit cards and don’t have enough to cover the basics, it can be too much.
You Have more than 30% of your Credit Line Outstanding
For the best results on your credit score, you shouldn’t have more than 30% of your credit line outstanding. This comes out to $300 for every $1,000 of your credit line. If you have over 30% outstanding, it’s a sign that you have too much debt.
You only Make the Minimum Payments
Making the minimum payment isn’t going to get you anywhere. You’re just covering the interest charges – you aren’t touching the principal balance. Ideally, you should be paying off the balance in full each month. If you can’t even come close to touching the balance and only make minimum payments, you have too much debt.
You Don’t Have an Emergency Fund
If you use every penny you bring in to cover your debts, you have too much. Everyone needs an emergency fund. It should have at least 3 to 6 months of expenses in it. This way if you lost your job or fell ill, you’d have the money to carry you through your expenses while you figured things out.
You Don’t Know which Debt to Pay
If you look at your debts and your head spins, you have too much. This may look like picking and choosing which debt to pay each month or forgetting to pay one or more debts altogether.
If you can’t make heads or tails out of your debt, you have too much. You should be able to afford not only the minimum payment but the full amount you charged. Carrying a balance only leads to more debt issues, and a deeper hole than most people can get out of.
Final Thoughts
Having too much debt can feel suffocating. You don’t know which debt to pay or how to keep your head above water. Bankruptcy may feel like your only option, but there are other choices too.
If you don’t know how to handle your debt, contact the credit professionals at Creditaid. We’ll help you figure out how to make the most of your finances and get out of debt with the least amount of damage to your credit score.