Although debt is scary and notorious for ruining your financial life, it can be a great tool to help you tide over during financial emergencies. The only thing that matters is how you manage your debt. The trick to being able to manage debt smartly is determining the need based on your income and goals.
Debt management is a severe challenge for many people as they do not know the difference between good debt and bad debt. Whether you have taken on small loans or credit card debt, you need to understand where you should stop.
You often think that you can easily manage to pay off the money you are borrowing and hence end up racking up debt. Some people cautiously ponder when they are to borrow a big amount of money, but when you have to take out a small loan like fast loans, you throw your caution to the wind.
Since these loans are paid off in a lump sum, you think that you can easily manage to pay off the debt. As a result, you do not realize that you have taken on debt more than your repaying capacity.
Warning signs when debt is too much debt
This blog discusses some warning signs that should raise the alarm bells along with actions you should take to deal with them.
You do not know how much you owe
If you do not know how much debt you owe, it means you are not taking care of your financial health. The first step to stay on top of your finances is to know how much money you have to spend on your regular needs and how much you are to pay off to your lenders or creditors.
What can you do?
- To get clarity about your financial situation, you should create a spreadsheet to note down your debts.
- Do not forget to write down your credit card debt. Make sure that you note the total amount to be paid to each debt you have taken on.
- When you add up, you will get to know how much you are to pay.
- After meeting all of your regular expenses, you must have enough money to pay off the outstanding dues. Otherwise, your finances are at stake.
You get nervous while looking at your bills
You feel a knot in the pit of your stomach when the thought of looking at your bills flashes across your mind, or you often avoid looking at them. If so, you must have racked up debt.
Missing due dates will invite late payment penalties and interest fees, and eventually, you will fall into an endless cycle of debt.
What can you do?
- You should mark the due dates on the calendar, so you do not fall behind the due dates.
- You always recommend choosing an auto-debit mode, so the payment is automatically deducted from your account.
- Make sure that your account has enough money to make the payments. If you have some financial hardships, you should immediately contact your lender and ask them if they can switch you to another repayment period. Try to tell them your true financial condition so they can offer you the best repayment period.
Your credit cards are maxed out
If you have maxed out your credit card, it means your finances are out of control. Credit cards are generally used for shopping. With them, you do not need to keep cash with you. You can buy things and pay for them when the bill is generated.
However, it is crucial to pay off the balance within the grace period to avoid interest. If you have maxed out your credit card, it means you do not have money to pay off the balance. Suppose you do not settle the outstanding dues. In that case, your credit utilization ratio will go up rapidly, and you will have difficulty borrowing money down the road from private money lenders in Ireland.
What can you do?
- In order to bounce back, you should start making payments as soon as possible.
- Make sure that you make higher payments than the monthly minimum.
You do not have an emergency cushion
If you do not have savings to meet your unforeseen expenses, it means a large portion of your income is going toward debt repayment. In the absence of an emergency cushion, you will keep chasing lenders to borrow money.
Since you have already taken in too much debt, borrowing more money will pose a more significant threat to your finances. If you create an emergency cushion, you will be able to avoid borrowing money every day.
What can you do?
- To start putting by money, you should create a budget so you do not overspend money.
- Track your everyday expenses so you can stick to your saving goal.
- Analyze your regular expenses to determine how much you can save.
- Do not stop stashing away money even if you are to pay off the debt.
You have been turned down for your new loan
If you have applied for a new loan and you have been turned down, it could be due to excessive borrowing. It not only affects your credit score but also affects your repaying capacity. Your lender will look over your repayment capability to see if you can pay them back.
What can you do?
- You should try to improve your credit score, and you can do it by clearing your dues. Start making minimum payments.
- You can also talk to your lender to put you on another repayment method so you can conveniently pay off your dues.
The bottom line
If you have been facing any of the warning signs mentioned above, it indicates that you have taken on too much debt. You should immediately try to fix the issue so you can stay on top of your finances. Otherwise, you will have a more difficult financial situation down the line.
