Many South Africans are carrying debt on both their credit cards and in the form of loans like a car loan. Debt is an unfortunate part of life that is hard to avoid as you may need a loan to buy a home, for instance. However, this doesn’t mean that you can rack up the credit card bills or take unnecessary loans.
If you carry too much debt then you will need to face it and tackle it head on, but you will need to know and recognize the signs so that you are able to take action sooner rather than later. Here are 6 signs that you are carrying too much debt.
All Your Money Goes to Debt
You should take a moment and determine how much you are spending each month on debt payments. Take a look at your credit card bills and other financial reports and tally up the minimum debt payments and compare this to your monthly income. The ideal scenario is that your debt payments shouldn’t be more than 36% of your gross monthly income, but if you find that half or more of your money is spent on debt repayments then its time to make a change.
If you are just working to pay off your debt, then it can become stressful. You are not able to get rid of your debt overnight, but you can take steps to eliminate some debts. You can look for ways to lower your expenses like renting a cheaper place, getting a roommate, selling your car and taking a cheaper one to lower car repayments, cancelling unnecessary subscription services and so on. Making some changes no matter how small can help towards your debt.
Just Paying the Minimum
If you are struggling to make even the minimum payment on your credit cards, then you are probably carrying too much debt. You can call your credit companies and ask if they would be willing to lower your interest rates. If you have consistently paid on time and have a good history with the creditor, then the company will likely work with you.
Another option is to look for a credit card that has a low introductory offer rate and transfer your balance to this card. The idea here would be to pay all or as much as you can off before the promotional offer ends and adjusts to the higher rate.
A decrease in the rate will lower the current minimum payment and if you continue to pay the original payment, you will be able to pay the debt faster.
More signs of too much debt…keep reading…
There are Physical Side Effects of Too Much Debt
When you have too much debt it often leads to credit cards being nearly maxed out. On top of this, creditors can start calling you if you are behind on your payments. The stress that this can cause can start to affect your happiness, sleep, appetite and cause anxiety and stress. If you are always worrying about your debt, then you probably have too much.
Denied for New Credit
Your credit score is affected by how much debt you owe. The more debt that you have then the harder it will be for you to get new credit. Your approval for credit will come to a quick end as lenders and creditors look at your applications and decide that you are already overextended.
Common reasons for lenders and creditors to reject your application is that you have a low credit score, no credit history, too much credit and high balances.
Nothing in the Savings
When you have a nice nest egg then it shows that you have good personal finance management. This can provide you with an income after a job loss or cash for an emergency. However, if the majority of your money is going towards debt payments then there is probably very little left for savings.
If you receive an additional income from a side job or if you receive a pay increase it doesn’t mean that you can get a bigger home, a new car or brand new items you don’t really need. Rather have a look at your savings account and determine if you have at least 6 months’ income as a cash reserve or liquid funds. If there is a lack of savings then it is a sign of a huge problem, especially if you are always shopping or taking on new credit.
Paying Your Bills Late
If you are carrying too much debt, then you are probably finding it difficult to keep up with your monthly payments. You could be forgetting about creditors and due dates completely or are sending late payments. When you owe too much, your credit score takes a negative hit and if you start to become late with payments then your credit score can take another hit.
If you find that you do have too much debt, then you will need to come up with a debt plan. You will need to have a disposable income in order to tackle debt, which can be hard to do. You can consider selling items you no longer need and putting this money towards your debt, taking on a part-time job or speaking with your creditors to come up with a plan. Another option is to speak to a debt counselor that can help you with debt and consider debt consolidation that places all your smaller debts into one, so that you have one affordable monthly repayment to make.