Do you think you might have a debt problem?
Some people are aware when they’re struggling with their debt. Others might choose to bury their heads in the sand, whilst there are also many people that don’t see the warning signs of a debt problem. Those people might remain blissfully unaware, but the longer you leave a debt problem the worse it can become. It’s far better to identify the warning signs as soon as possible, to take action and make changes. We always recommend seeking professional money advice which is available free of charge. Here are a few of the signs that you need to look out for:
Thinking about debt
It sounds obvious, but many people get so used to debt worries that they think it’s a normal state of mind. If you’re lying awake at night worrying about how you can pay off your debt. Or even how you can afford to pay your bills when you have so many minimum payments to make. Then this is a clear sign of an existing debt problem.
Having debt across many sources
Credit card companies will send offers through the mail. Stores invite you to open a store credit card whenever you shop with them. You can get loans online with so called “instant payday loans” and have the funds within 24 hours if approved. For careful borrowers that’s fine. But if you have a tendency to keep borrowing and not paying the money back then it’s easy to build up a worrying list of debts.
Write out a list of every debt that you have. Hopefully you can remember them all! The longer your list, the more likely it is that you have a debt problem. Even more concerning is that credit card companies will often automatically increase your limit. This gives you more spending power which is especially dangerous if you find it hard to control what you buy.
Using a credit card to pay for essentials
You shouldn’t be using your credit card just to buy the food that you need to survive. In fact, debt advisors suggest that you have a debt problem if more than 20% of your income is spent on debt repayments. Which means that someone without a debt problem should have 80% of their wage or salary for all their essential purchases. If you’re using a credit card just to get by then this could be a clear warning sign.
Borrowing debt to pay off other debt
Do you find yourself taking out extra loans to pay your bills? Is it because all your spare money has gone on existing debt? Or because you’re taking out new loans and credit cards to pay back older debts. Then you’re in a dangerous position. This is especially true if you are relying on payday loans or other forms of high cost short term credit. Something which is not suitable for fixing long term financial problems.
Sometimes, consolidation loans can help you to get out of debt when you’re in it. If you have a £100 small repayment on your credit card, £100 on a loan and £100 on a store card then you need £300 each month just to meet your minimum charges. Consolidating your debt can lower your monthly repayments. But will add more interest and will make the debt last for longer. Maybe you’re simply taking out one bigger loan to cover an existing one. Or you’re consolidating your debt and then using your empty credit card and building it back up. Then you’ll end up in a spiral that’s hard to get out of.
Hiding your debt
The last warning sign to make this list is hidden debt. You don’t need to go shouting about your loans and credit cards from the rooftops. What if you’re rushing to greet the postman because you don’t want your partner to notice your credit card statement? Or you’ve taken a loan without telling your spouse. Well then, think carefully about what you’re hiding and why.
Read our guide on how to budget properly for extra tips.