Do I Have a Debt Problem?

Signs You Need a Debt Management Program

Is your debt hovering over you? Take a look to see if you may have a debt problem

American consumers reached a financial milestone in the summer of 2017, but it was hardly a cause worth celebrating.

According to the Federal Reserve, U.S. consumers credit card debt, reached $1.021 trillion, the highest amount of credit card debt in history. Annual growth rate for that debt is 4.9% and American households owed an average of $10,955.

This page will highlight real-life signals of debt problems and how a debt management program could help address them.

How many of these warning signs of financial problems apply to you?


This is pretty basic stuff. Debt is a result of spending more than you make. It can happen easily if you don’t have a budget to track both sides of the equation. If you are spending more than you earn, there are two solutions:

  • Cut expenses
  • Find a way to make more money

Yes, it sounds simple, but if people put these simple principles into practice — and stuck to them — they wouldn’t have debt. That might mean cutting back on eating at restaurants, skipping a night on the town or passing up that new electronic gadget, but the reward is regaining control of your finances.

Denied Credit

Serious red flag here. When you apply for credit, the lender will check your credit report and score to see what kind of risk you represent. A low credit score — along with a credit report filled with late or missed payments — tells the lender you won’t be able to pay back the money. That is how you get denied credit.

Paying Overdraft Fees

If you’re constantly paying fees for overdrawing your checking account, it’s a good indication that you need to scale back your lifestyle. Whether it’s lack of education, responsibility or financial discipline, this could lead to serious financial problems.

Over The Limit Fees

Credit cards generally charge fees if you spend over your credit limit. That is an additional charge that is easy to avoid, just by paying attention to your balance. Anytime your credit card balances surpass 80% of your credit limits, you have a problem that needs addressing.

Too Many Cards

Too many credit cards inevitably leads to too much debt. When was the last time you have a zero balance on your credit cards? Can you pay off your combined credit card debt within one year? If the answer is “no”, then you’re probably headed for trouble.

No Money

It’s OK to use credit cards for small purchases, such as gas and food, for convenience sake, as long as they are paid off each month. But if you turn to credit because you never have cash for basic purchases, it’s time to seek some help.

High Debt-to-Income Ratio

Your debt-to-income ratio measures your amount of debt against your income and tells lenders whether you can afford repayments. There are two ways to calculate a DTI. The first includes your mortgage/rent obligations; the second one does not. In both cases, divide total monthly debt obligations by your total monthly gross income. For example, if you have $1,000 a month in debt obligations that includes $500 for rent and $2,000 a month in income, you have a 50% DTI (1,000 ÷ 2,000 = .50). If you do it without the rent, you have a DTI of 25% (500 ÷ 2,000 = .25). Experts like a DTI at 35% or less, if you include rent/mortgage. Without rent/mortgage, they suggest a DTI under $25%.

3 Warning Signs of Too Much Debt

Here are some warning signs of too much debt, and what you can do to relieve your debt – by Money Minute


Emergency situations happen to everyone. The problem occurs when people can’t pay for emergency auto repairs or medical expenses because their credit cards are maxed out and most of their earnings are going toward debt repayments. That’s why it’s vital to have an emergency fund or an open line of credit for these situations, which can occur at a moment’s notice.

Not Accounting For Inflation

Between the rising costs of housing, food, gas and other expenses, most people will not receive an annual raise to offset those increases. So if spending isn’t cut back — voila! — there is debt. It’s Economics 101. It requires some planning and thought.

Minimum Payments

Many people believe they are just fine making the minimum payment on their credit cards. Not true! By making the minimum payment with revolving credit card bills, you are setting yourself up for financial failure and possibly a 12-to-15-year cycle of repayment. Making the minimum payment means you are not applying any significant amount toward reducing the principal. If the minimum payment is all you can manage, it sounds like you’re overextended and needing to straighten things out with a debt management plan.

Using Credit For Other Card Payments

Don’t fall into the trap of taking cash advances to pay your bills. By paying one credit card with another line of credit, you actually create more debt. Making matters worse, there are likely cash advance fees and interest from the new line of credit, both of which make matters worse.

Balance Transfers

They seem like a get-out-of-jail-free opportunity. Creditors often present new credit cards with balance transfers available at zero or low interest rates. But shifting around your credit card balances is not good business, unless you plan to quickly pay off the principle amount owed. Otherwise, it’s hocus-pocus that could bring more trouble. Remember, too, that following the introductory period, the interest rates skyrocket to 19% or more. Many cards also charge fees for transferring balances. So what looks like a solution could bring hidden costs that exacerbate your problem. And if balance transfers become your primary option, that’s a sign you have issues managing money.

Skipping Payments

This seems obvious, right? If you are late paying your mortgage, rent, car loan or utility bills more than once a year — or if you’re juggling bills and skipping payments altogether — you are building a house of cards that will be wiped out.

Asking Relatives For A Loan

It’s never a good practice to borrow money from family or friends to deal with day-to-day expenses. If this is a constant occurrence and you’re still short on the bills, credit counselors can teach you how to budget or devise a plan that can responsibly pay off your debts.

Tapping Into The 401(k)

Major no-no. Borrowing money from your 401(k) or taking a premature distribution from a retirement account is doubly troubling. It shows that you can’t manage your debt. But it also harms what should be a solid financial force in your future. Debt management programs teach you how to manage your cash so bills can be paid, an emergency fund can be established and the 401(k) plans can be left alone.

Debt Consolidation Loans

Debt consolidation loans can be an effective method to pay off existing bills. But undisciplined consumers sometimes wind up immediately running up more expenses on their credit cards again, thus defeating the purpose. Debt consolidation is a last resort for financial issues. If you’re going down this route, you need to curtail spending and perhaps cut up your credit cards to avoid more problems.

Unsure Of The Amount Owed

If you truly have no idea how much debt you carry, that’s a dangerous sign. If you use credit cards recklessly and don’t track your spending, it could quickly spiral out of control. The “Do I Have Too Much Debt Calculator’’ can be a useful tool.

In Conclusion

The Federal Reserve said 38.1% of all American households have some form of credit card debt.

“This is a real issue,’’ said financial expert Ric Edelman, a syndicated radio host who has published eight books on personal finance. “It’s not getting better. It’s getting worse.’’

Most experts suggest having an emergency fund that’s worth between three and six months of your expenses. For example, if your monthly expenses are approximately $5,000, you should have $30,000 in liquid savings.

“That’s extremely important because you never know, a catastrophe could be around the corner,’’ said personal finance expert Laura Adams.

It might be extremely important, but in too many cases, it’s extremely unlikely anyone has that kind of emergency fund.

According to the 2015 National Financial Capability Study (NFCS), released by the FINRA Investor Education Foundation, less than half of American consumers have put aside three months of emergency funds to deal with potential calamities, while only 39% have tried to figure out how much retirement savings they will need.

“We have a very fragile economy,’’ says George Washington University professor Annamaria Lusardi, an author of the study. “Half of our population could not face an emergency. That is troubling. It’s why people are tapping into their retirement accounts. It’s why people might go to their credit card to deal with an economic shock.

“What happens if we go back to a recession? People could not deal with it. In my view, this type of (emergency) planning is essential to financial capability and it is simply not happening at what I would consider an acceptable rate.’’

Sometimes, debt can spiral out of control through medical emergencies, death or divorce or even something as mundane as an automobile repair.

But often, it is fostered by carelessness, such as putting day-to-day expenses on credit cards and failing to keep up. Consumers in debt make minimum balance payments, allowing interest to mount up on future payments.

If you are trending in these directions, it’s could be time to examine your financial picture and explore a debt management program – and the counseling that comes with it – through a nonprofit credit counseling agency.

Lusardi, the George Washington University professor and one of the world’s foremost experts on debt, said lack of financial knowledge is a huge problem in America.

“If your parents didn’t teach you, if you fall into the same financial traps, if you have no way to learn about the right way to do things, the issues will continue,’’ Lusardi said.

She advocates a plan that emphasizes:

  • Financial discipline
  • Delayed gratification
  • Detailed monthly budgeting
  • Building up an emergency fund
  • Saving for the future
  • Financial education.

Part of that education could be consulting with a credit counselor from a nonprofit agency. They could suggest an effective debt management program.

America’s debt problem is getting worse. On an individual level, it can be addressed by recognizing the issues, then working to solve them before the problem becomes unmanageable.


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