5 signs that you have too much debt to pay off

If your debt is piling up with each day, you might be wondering about the solutions to tackle the problem of having too much debt to pay off. Looking at the debt-to-income ratio will help you get the idea. For this, you have to add all your monthly debt obligations including housing payments, auto loans, student loans, and credit card debts. Debt loads that exceeds the percentage of 36 is considered as too much debt  to pay off.

To tackle to problem of too much debt on your shoulders, you have to access your spending habits in detail. Let’s first look at the important signs that you have too much debt to pay off.

 You are unable to make monthly payments

 If you are unable to pay the minimum debt balance, that is the key indicator that your debt burden is out of control. In addition, if you don’t make minimum payments each month, it will prolong the time to pay off the current balance and increase the interest charges. 

Too much debt to pay off means that interest rates surge up quickly. For a credit card that has a regular APR greater than 20%, the additional interest cost would be in the thousands.

You have been denied for a new credit card

This is also the key sign that you have too much debt to pay off. If you are planning to consolidate loan by getting a card with low-interest charges and the issuer denies it, that means that you are unable to fulfill the certain credit score criteria for the card.  Low credit score is the key indicator that tells the issuer that the person is at risk of defaulting on the loans or have the bad credit history and are unable to make minimum payments on time.

When you have been rejected for the new credit line , it completely limits your short time financial; flexibility that can burden you with more debt.

 You are consistently making late payments on the bill

 If you are continuously making late payments on bill due to financial instability, then it’s a telltale sign too much debt to pay off.   In this case, you are likely to use the fund from the retirement savings which is not at all good for your retirement life.  And if you are using credit cards to pay for bills then you probably need to reexamine your finances.

You cannot save money for the emergency fund

 One of the important things in managing personal finances is to keep the money aside for emergencies. Certified financial planners usually recommended to keep enough money aside for a time period of at least three to six months. Although huge saving is beneficial but the bare minimum should be at least three to six months.

  If you have too much debt to pay off with high interest charges and you are enable to make payments on time then in this situation you would not be able to save up for the emergency fund.

So, if you are enable to add even a small amount of cash buffer to your emergency fund then that means that debt burden is too high to manage.

Your credit score has declined

If you are currently using too much of the available credit and making late payments, the credit score will decrease rapidly. This is the key indicator that you have too much debt to pay off. The low credit score even makes it harder to consolidate credit card debt at  low interest rates.

What kind of debts do you need to know about?

 If you have too much debt to pay off and want to ease the process, firstly learn the difference between good , bad and toxic debts. Let’s deep dive into the details.

 What is a good debt?

When the interest rates are low and fixed and you have used the debt to pay for valuable big purchases like home , business, college education than its regarded as good debt . Also, it is extremely good if the interest is tax deductible like other student loan interest and mortgage.

What is a bad debt?

 The loans that have high variable APR and is used to buy things of lesser value is regarded as bad debt . For instance, if you take high interest credit debt to have a vacation in Thailand , then this sort of loan is considered bad and will impact your credit report a lot.

What’s toxic debt?

 The loans that requires collateral, such as car , home with a APR  greater than 36% is regarded as toxic debt . Once you take kind of debt you will be end up paying more then the total worth of the item . If you are unable t pay debt you will end up losing your important assets.

 How do you get help if you have too much debt to pay off?

 If you are constant worried about too much debt then consider the following approaches to manage the debt

Debt Settlement Program

So this one is the favorable option to consider before you go to file a case for bankruptcy. As the bankruptcy will stay on your credit report for a longer duration of time so try to settle debt using the debt settlement program. Through this program, the organization will talk to the credit issuers to lessen the interest charges to make it convenient for the user to pay it off.

 Debt Consolidation loan

 One other approach you might need to consider is the debt consolidation loan. With debt consolidation, you take a new loan to pay off existing debt with lesser interest charges. Through this way more of the monthly payment will go to pay debt and less towards the total interest charges. If you have too much debt to pay off , this one is a more appropriate approach.

Debt Consolidation vs Debt Settlement: Which is the better option?

Depending upon the financial circumstances , it might be difficult to make a choice between debt settlement and debt consolidation. To know about these terminologies in detail , have a look at the comparison of these approaches.

Credit Counselling

If you have too much debt to pay off, you might also consider contacting credit counselling services. These services will help you to streamline the debt pay off process and help you establish a realistic budget that is tailored to your needs. You can contact the low cost credit counselling services and credit unions to help you during this hard time.

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