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How to Know if You Owe Too Much

5 Signs You Are in over Your Head with Credit Card Debt

Feb 25, 2008 L. Marie Dubuque

Losing sleep over too much credit card debt is not the only way to tell you're in trouble. Learn the signs that you are spending too much and how to stop it.

If your financial life is like a house of cards and you’re using one credit card to pay off another, you could be in for a money meltdown.

How to Know if You Owe Too Much on Your Credit Cards:

Your card balance is more than 30 percent of your available credit limit. If you are teetering close to the limit every month, that is a sign you are in over your head and need to pay down that debt now. Not only will you have a harder time making the interest payments, but those over-the-limit fees will put a huge strain on your pocket book. Also, spending all of your available credit does not look good in the eyes of lenders. 30 percent is considered the maximum to maintain a decent credit score.
You only make the minimum payment every month. That’s only 4 percent of your total bill, not enough to even make a dent in your principal. If you continue to spend on that card and never make more than the minimum, you'll be indebted to the card issuer for the foreseeable future. Starting this month, pay 10 percent more than you did last month and spend 10 percent less. Then next month pay 20 percent more and spend 20 percent less and so on, until your entire debt is paid off.
You use your credit card for groceries but fail to pay the entire balance at the end of the month. You are in a heap of trouble if you can’t even pay your food bill at the end of the month. If that’s your situation, sit down right now and come up with a workable budget. If all your credit cards are maxed out and you can barely make the minimum payments, it might be time to see a reputable credit counselor.
You’re playing the revolving credit card game. That means you use one credit card to pay off another. Sooner or later, it won’t work any more and you’ll be forced to face the music. Just make sure the leader of the band is you. Take charge of your debt now before it is too late. Contact your creditors immediately. Negotiate a lower interest rate and set up a spending plan.
You have trouble sleeping and you’ve missed or been late on a payment during the last two months. This is a sign that your debt is eating away at you. It’s time to stop the vicious cycle. Look at downsizing your house, even if it means getting rid of it in a short sale, or taking on a second job until your bills are paid.

Remember, debt doesn’t have to be a lifelong situation. As long as you tackle it head on and realize why you started over-spending in the first place, you can begin to make a serious dent in the debt cycle.

The copyright of the article How to Know if You Owe Too Much in Consumer Education is owned by L. Marie Dubuque. Permission to republish How to Know if You Owe Too Much in print or online must be granted by the author in writing.

What to do if your credit cards are maxed out.