How To Know If You Have Too Much Debt

Believe it or not, “debt” isn’t a dirty word. In fact, carrying at least some debt is an advantage. Taking out a loan and then repaying it regularly and on time shows creditors that you can be trusted with money, and that often paves the way to better credit ratings and easier access to major loans, such as mortgages.

Yet while carrying a healthy amount of debt is good, carrying too much debt is obviously not; too much debt will actively reduce your chances of additional credit, especially if lenders feel you can’t handle the repayments on yet another loan. At the same time, it can sometimes be hard to distinguish between carrying just enough debt and entirely too much, as this amount is different for each person. Here are some tips on identifying whether you’re personally carrying too much debt or not.

You’ve Been Paying Monthly Minimums For Longer Than You Can Remember

Real talk: there’s nothing wrong with paying the minimum monthly payment on a debt every once and a while. Doing so can be a real lifesaver if you have a financial emergency and you need to devote funds elsewhere temporarily to deal with it. However, consistently paying nothing but the monthly minimums on the debt you are carrying is often a red flag that you’ve got too much debt and shouldn’t be taking on any more right now.

Meanwhile, if you are only paying the minimums on your debt monthly, you’re actually costing yourself more money in the long run. Paying over the minimum reduces how long it takes for you to clear your debt, and it also reduces the amount of interest you’ll be paying in the long run as well. It might seem strange that you’ll save money by spending money, but when it comes to making those minimum payments it’s absolutely true.

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The Limits on All Your Credit Cards Are Maxed Out

Credit cards are excellent tools for purchasing things that you don’t have the cash for immediately but can easily pay for over the course of a few months. However, using your credit cards to the point where you’ve reached the credit limit on each one and every one (and not paying down that debt) is a clear indication that you are over-spending, and that means you’re carrying way too much debt for yourself.

Listen: high credit limits are a reward for responsible borrowing, not an excuse to spend more than you can afford. Just because you have a high limit on your credit cards doesn’t mean you have to be pushing that limit at all times; in fact, if you’ve got too many credit cards maxed that’s a sure sign to other lenders that you’re not a responsible borrower, and that can come back to haunt you in the future if you’re looking for a mortgage or other large loan.

You Can’t Seem to Put Any Money Aside for an Emergency Fund

Speaking of emergencies, it’s simply a fact of life: they happen all the time, whether you’re ready for them at not. Having an emergency fund that equals anywhere between three to six months’ worth of your regular expenses gives you some peace of mind when the inevitable occurs, but if it seems like you don’t have anything left to pay into this fund at the end of every month after making debt payments, this is a clear indicator that you’re carrying too much debt.

You can’t put money aside for the future if you’re still paying off debts from the past. It’s time to make a concerted effort to reduce your debt enough that you can begin to save at least a little bit every month to help offset the costs of any sudden unforeseen emergencies. Otherwise, you risk being in the unfortunate position of being in too much debt as well as having no resources to deal with an unexpected emergency situation.

It’s Never Too Late to Get a Handle On Your Debt

Have you been struggling to make more than your minimum monthly payments? Are you guilty of maxing out your credit cards? Did you wince when it came to thinking about putting together an emergency fund? If you’re in even just one of these circumstances, you’re probably carrying too much debt right now.

But don’t worry! It’s never too late to figure out ways to get a handle on your debt. The first thing you have to do, which may be the hardest thing you’ll be tasked with, is to establish a solid budget that shows you exactly what your resources are and where it has to go every month. It sounds easier said than done, but it’s the most important step in getting your finances under control and reducing your debt to healthy levels.