Debt can be extremely stressful and many people have experienced the distress of being in deep financial trouble. However, often people tend to avoid the issue of debt because they don’t realize how seriously in debt they are. And the more they ignore it, the more it grows until it becomes serious enough to create more debt and more distress. But, after a certain point, debt cannot be managed anymore because it has been taken out of control. So, the best thing to do is take action when the early debt signals kick in; before the problem becomes extreme, and possibly unsolvable.
Debt comes in all shapes and sizes. But there are ways to understand something is wrong before it gets worse.
Here are some useful tips:
- You can only to afford to make minimum payments on credit cards
Many people think that paying minimum credit card installments saves them from going into deeper debt. However, the opposite is true as paying only the minimum leads to higher interest in the long run. Credit card companies purposely set minimum payments to equal 2% to 4% of outstanding balance. Lower payments will take longer to pay-off the card and this earns creditors thousands of dollars on paid interests. However, bottom line is you are fully becoming a debt slave for the credit card companies.
- You refinance credit card debt using a home equity loan
Paying off debt with a home equity loan is a popular practice. However, although it seems straightforward, many people forget that the collateral of the loan is their home. This means that in case they default on the loan, they can lose their house. Besides, some home equity loans offer an amount equal to 125% of the home’s value, which is intriguing, but the borrower may end up paying more than the home’s value.
- You are looking for a second job to pay off your credit cards
Many people look for second income sources to pay off their credit cards. In most of the cases, this means they are 100% in debt since their main income is not enough to cover their living expenses and debts.
- You need another credit card to substitute for cash
Charging credit card to credit card and keep increasing the debt is a typical sign of being in deep financial trouble. People who live only on credit cards because they don’t have cash on hand create a vicious cycle that doesn’t end until they realize they need the help of a professional advisor to guide them getting out of debt.
Another hint would be if minimum payments of all debt cumulatively account for more than 20% of total income. This would be mean, debt is extremely high.
Overall, debt is a cycle. If you don’t take action early, the circle will get tighter and you will get deeper in debt until bankruptcy is your only option. Many people consider bankruptcy as a routine process that will provide them with a fresh start. Yet, it is not as simple as that. So, before you get there, it is easier to pay attention to every little debt signal and take control of it. This will definitely save you from more distress in the future.
Christina Pomoni has acquired her MBA Finance from the American College of Greece. Her advanced familiarity with financial statement analysis, capital budgeting and market research has been acquired through her professional career at high-esteemed organizations. As part of her long journey, Christina has served as an Equity Research Associate at Telesis Securities (EFG Eurobank) and a Financial & Investment Advisor at ING Group. Besides, having lived at Chicago, IL, Boca Raton, FL and Paris, France has helped her, not only to be a successful professional, but mostly to see life under a more creative and innovative perspective.Since 2005, Christina provides high quality writing services to numerous websites and research companies contributing her knowledge and expertise. Her areas of specialization are Business, Finance & Investment, Society, Politics & Culture. She also has a very good knowledge of Entertainment, and Health & Fitness.Christina currently designs the website of her own writing company. Believing that knowledge is the road to opportunity and development, her mission is to promote her already established knowledge to a growing number of visitors and to provide high quality writing services to meet the most demanding customer requirements.
