Debt Problem Signals

Each year millions of people do not discover that they have a debt problem until it is too late, or until they are looking to finance an important purchase. Consider the following a valuable checklist for credit problems:

Minimum Payments
What many people don't realize about credit card bills is that making only the minimum payment can not only extend the repayment time period, but add thousands of dollars to the total debt. If you find yourself making only the minimum payments on your credit cards every month, you may be overextended and in need of a structured spending plan.

Too Many Cards/Too Much Debt
As a general rule of thumb, you either have too many credit cards or you are carrying too much debt if it seems you cannot pay off your combined credit card debt within one year. When was the last time you had a zero balance on your credit cards?

Unsure Total Amount Owed
Many people have no idea how much debt they carry. If you continue using credit cards and are not tracking your spending, your financial situation may get out of control.

Skipping Payments
Are you late paying your mortgage or rent, car loan or utility bills more than once annually? If you skip payments and juggle bills often, this is a definite sign that you have a debt problem.

Very High Debt-to-Income Ratio
Your debt-to-income ratio measures the amount of debt you have against your income. Calculate this ratio by dividing your total monthly debt payment (excluding mortgage/rent) by your total monthly gross income (before taxes). For example, $500 in total monthly debt payments divided by $2,000 in monthly gross income results in a debt-to-income ratio of 25 percent. If your debt-to-income ratio is near or over 20 percent, this is a sign that you may have a debt problem.

Balance Transfers - Dangerous?
Many creditors offer new credit cards with low interest introductory balance transfers. Always remember that after the introductory period, the rates typically jump to 19 percent or more. As well, if you keep switching credit card companies, you may discover a problem managing your finances.