Credit Card Debt Essentials

Recognizing the Danger Signals of Credit Card Debt

Would you be able recognize a serious credit card debt problem if you had one? You may think you’re not in trouble with credit card debt if you’re managing to stay afloat, but credit card debt problems often begin long before you ever start missing payments or calling relatives to borrow money to cover your bills. In truth, even though you may think you have a handle on your credit card debt, one emergency could send your finances spiraling out of control.

Don’t wait to start falling behind before you seek the debt help you need. If you are showing any of the danger signs of a credit card debt problem provided below, call us at 1-800-656-3920 to speak with a trained credit counsellor. Consolidated Credit’s counsellors can assess your finances and let you know if you need to find a debt relief solution free of charge. If you prefer, you can get started online with a Free Debt Analysis.

Heading Down a Debt Spiral

The trouble with debt is it becomes bigger the longer you leave it alone. Each month your debts are compounded by high interest. Even if you make all your minimum monthly payments on time, you do very little to reduce your actual debt each month. Most of what you pay towards your bill is allocated to paying off the interest accumulated during the month. The principal debt (the original amount owed) is only reduced by a small portion of what you paid—in some cases, you only decrease your total debt by a few dollars once all is said and done.

Meanwhile at the same time, you’re often adding to your debt with everyday shopping or even special purchases like birthday and holiday gifts. In the end your debt is building at a much faster rate than what you’re paying off. Eventually, it either gets too big for your monthly finances to cover or you hit an unexpected expense that sends you over the edge.

Once you start having problems keeping up with your bills, the debt dangers only get worse. If you miss a credit card payment your creditor applies a few penalty fees and/or a penalty APR interest rate. This is typically about twice the interest rate you pay normally on your account, so now your debt is building even faster and you owe more at the end of the next month. One or two credit card penalties later and you simply can’t keep up with your finances anymore.

How to Know If You have Too Much Credit Card Debt

As you can see from the scenario above, a credit card debt problem actually begins well before you start missing payments and juggling your finances to pay your bills. In addition once you’ve reached this point, many debt relief options may no longer be viable—particularly if your debt problems have already started to affect your credit rating. It is important to recognize you need help early on to make sure you have every option available to provide the relief you need from too much credit card debt.

Here are some sure signs you have a credit card debt problem:

• You spend 15 per cent or more of your net income paying credit card debts. Experts agree you should only be putting about 10 per cent to 15 per cent of your take-home income, after deductions, towards paying off credit card debts per month.
• Your income is already spoken for before you even get your paycheque. If you’re waiting for money to come in every pay period or putting off paying bills until the last minute so your paycheque can clear, you need to get help with your debt.
• You are using savings or retirement accounts to pay bills. Dipping into your savings and retirement accounts to pay bills is only delaying the inevitable and putting your financial future at risk. Savings accounts only work effectively if you leave the money alone. Taking money out with the idea you’ll replace it later is just limiting the time your money has to grow.
• You only pay the minimum monthly payments on your credit card bills. This is the beginning of the downward debt spiral described above. Seek help from a trained credit counsellor and make a plan to pay your debt off before it starts causing more problems in your finances.
• You have reached the credit limit on all your credit cards. If you’ve reached your maximum credit lines on all your credit cards, it’s not time to get another credit card—it’s time to get debt help!

In addition to these early warning signs of a debt problem, there are also some strong indicators that show you need to find debt relief as soon as possible before your financial problems get even worse:

• You are deciding which bills will actually get paid this month
• You do without something you need because you have to use the money to pay bills
• You’re dodging collectors and screening phone calls to avoid your creditors
• You lose sleep worrying about debt and money troubles
• Problems with finances are causing regular arguments in your home
• You’re asking friends or family to borrow money to pay bills
• Your kids’ extracurricular activities are restricted because you can’t afford the cost of team fees and/or equipment

If you think you have a debt problem or you know you’re showing some of the above warning signs, call us at 1-800-656-3920 to speak with a trained credit counsellor. Your counsellor can provide valuable information on options you can use to find debt relief and recommend which option would work best for your situation. You can also get started online with our Free Debt Analysis.

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