Experts share their checklists to help you decide whether you need help or not
If we were to have an honest conversation about your financial situation, would something like this come out of your mouth:
My anxiety is at an all time high and I dont know where I should turn. I have now accrued $18,500 in credit card debt with a 20% interest rate and Im trying to pay off $80,000 of my childs student loans. I have zero in savings and maybe $40 in my bank account. I dont know if Im a little in debt or a lot in debt, but I honestly dont know what to do.
So, tell the truth does ANY of that hit home? The stress? Not knowing if you can feasibly pay everything off or where you could go to get help?
Do you qualify as 'normal'when it comes to debt?
Americans are indeed up to their eyeballs in debt especially Millennials and GenXers. As of the second quarter of 2024, American households collectively carry a total debt of $17.8 trillion 42% more than tenyears ago.
While that $17 trillion is a lot, whats important is how much debt YOU carry and can manage. ConsumerAffairs research found that if you dont include mortgages in the equation, homeowners are approximately $68,571 in debt when everything is added up in these three categories:
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Credit Card Debt: $14,805 per household without a mortgage.
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Auto Loans: $20,519 per household without a mortgage.
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Other Debts: Including personal loans, HELOCs, and other consumer debts, averaging around $33,247 per household without a mortgage.
But for households with a mortgage, that debt goes up about$260,000 more to approximately $330,000.
So, where do you match up --under or over?
Theres another way to peel this onion. A manageable level of household debt (excluding mortgages) generally depends on individual financial circumstances, but financial experts often recommend keeping non-mortgage debt payments below 20% of your monthly take-home pay. This includes credit card debt, auto loans, personal loans, and other consumer debts.
For example, if your monthly take-home pay is $5,000, your total non-mortgage debt payments should ideally not exceed $1,000 per month. This guideline helps ensure that you have enough income left for other essential expenses and savings.
Are you in 'real'debt or just need some guidance?
Numbers are one thing, but looking at them is not going to tell you whether youre really in debt or not, Howard Dvorkin, CPA, of Debt.com told ConsumerAffairs.
You just need to look inside yourself. Whatever that amount is, does it keep you up at night? Are you stressed out about your debt? Does it affect your mood? Your appetite?," he asked.
Most of us have pretty good gut feelings about our own lives, Dvorkin said. We know when were in trouble, even if we dont admit it to others. Debt isnt just a number; its a disease that ruins your quality of life. It is like any other addiction. If you drink socially, even if you overdo it every so often, it's a problem you can handle on your own.
But if you drink all day just to cope with life, then you need professional help. In this case, you need an experienced debt counselor. When you call a credit counseling agency or a debt solutions company, you should receive a free, in-depth debt analysis.
Every expense is reviewed, and the pro will likely recommend a proven program like debt management or debt settlement. Both programs pair you with professionals who walk you through the process and stay in touch the entire time, continues Dvorkin.
There's no shame in seeking professional help for any problem, and certainly not debt, he said.
Other warning signs
Still, it may take time to recognize the warning signs, and some can be subtle, suggests Josh Richnerat theNational Legal Center, and who specializes in areas like credit repair. From his experience, Richner believes that there are five real-world ifs that you may need to focus on your debt.
Turning to Credit Cards for Basic Necessities: If youre relying on credit cards to cover essential expenses like groceries or utilities, its a clear sign that debt is becoming a problem, Richner told ConsumerAffairs.
Growing Credit Card Balances: If youre trying to pay down debt but see your credit card balances increasing month after month, chalk up another warning sign that debt might be sneaking up on you.
Lowered Credit Limits: If your lender your credit card company, for example has lowered your credit limit, Richner says thats another sign that someone is seeing warning signs they dont like and theyre trying to limit their risk, another red flag that your debt levels are becoming concerning.
Maxed-Out Credit Limits: If youve maxed out or exceeded the limit on your credit card limits, its a clear sign that your debt is becoming too much and that you're close to running out of the available credit lenders will trust you with.
Credit Score Decreasing: If you notice your credit score dropping, it could be tied to your debt-to-available credit ratio, is the last of Richners warning signs. As your balances climb and your available credit diminishes, your credit score may take a hit, signaling worsening debt levels.
Photo Credit: Consumer Affairs News Department Images
Posted: 2024-08-26 11:39:29
