If used correctly, credit cards can be used to your advantage. You can accrue reward points and end up essentially getting paid to use a credit card. But playing this game is dangerous, as one missed payment leads to paying interest, paying late fees and a bad credit score.
The average American household is saddled with $10,000 in credit card debt. But the total amount of your debt isn’t the number the credit bureaus are looking at. They’re looking at your credit utilization rate and debt to income ratio. A good credit utilization rate is anything less than 25% while a good debt to income ratio is anything less than 36%.
Rather than look at data to determine whether you have too much credit card debt, you can also determine whether you’re in over your head by looking at these 8 signals.
You’re In Denial
If the thought of your credit card debt enters your mind throughout the day and you brush it off as no big deal, you’re lying to yourself. If you then lie to your spouse about the severity of your debt, you truly have more debt than you can handle.
Being in denial about your issues isn’t going to help. The only way to get out of credit card debt is to first admit that you’re in trouble. Then, and only then, can you begin to create a plan to get out of debt.
You Don’t Know How Bad It Is
How much debt do you have? If your answer to this question is “a lot” then that’s a clear signal you have too much credit card debt. If you fear checking the balance so much that you ignore it, you need to realize you’re in deep trouble.
In order to dig yourself out of this hole, you first need to know the size of the problem so you can create a plan of attack.
You Only Make The Minimum Payments
Paying the minimum payment may make you feel like you have control of your debt. After all, you’re not in collections and there’s no late fees, so what’s the problem?
The problem is that you’re not really reducing what you owe, you’re only paying the interest. Your balance then grows and pretty soon you’re in a situation where it can take you a lifetime to pay off your credit card debt.
The only way you’re going to get out of debt is to pay at least double the minimum payment so that you can take a chunk of the principal each month.
You Have A Maxed Out Credit Card
Having a credit card that’s maxed out is a big sign you have too much credit card debt.
For the sake of your credit score, you should never use more than a quarter of your available credit.
You Use Your Credit Card For Everything
If you are a responsible credit card user, you can use a rewards credit card to make all of your purchases. But if you don’t have a rewards credit card and you can’t pay off the balance each month, you should not use your credit card for everything.
If you find yourself using your credit card for groceries, gas and other everyday purchases, it’s a sign that something is wrong.
You Can’t Save Money
When you can’t save money from each paycheck you’re forced to use your credit card to make ends meet each month.
A lack of an emergency savings account is a leading cause of credit card debt because you’re not able to handle an unexpected emergency.
You Can’t Get Another Credit Card
You know you’re in too much credit card debt when you need another card and you get denied for it. When the credit card company deems you as too much of a risk, it is validation that you have too much debt.
You Pay One Card With Another
Paying one credit card off by transferring the balance to another may work, if done correctly. You can transfer the balance of your 29% interest card to a card with a 0% introductory interest rate.
It sounds like the solution to your problem, but if you don’t pay off the balance before the introductory period ends, you’ll begin paying interest again. Another thing that happens when you juggle your balances is that you acquire new credit and you feel like it gives you a license to spend some more.
If you have the need to pay one credit card off with another, it’s a sign that your credit card debt has gotten out of control.
What signs did you see in your situation that made you realize you had too much credit card debt?