9 signs you have too much debt

9 signs you might have too much debt
9 signs you might have too much debt

Like extra pounds, debt seems to collect when you’re not looking.

But there are early warning signs. Heed the signals and you can turn the situation around before the bills get out of control.

If you’re afraid you might be packing on too much debt, trust your gut. And see how many of these nine signs hit home:

1. You can’t pay full balances
One big sign that you have too much debt: You’re carrying credit card balances. Because, face it, who’s going to pay 12 to 15 percent in interest if they have an alternative?

The secret to credit cards: Use them as a convenient, secure payment method, not a short- or long-term loan. That means if you don’t have cash to pay for something, you don’t charge it either.

When all you can afford to pay are the minimums, that’s a really bad sign, says Bruce McClary, spokesman for the National Foundation for Credit Counseling, a nonprofit organization.

When you’re routinely just paying the minimum on those open-ended accounts, you have a real problem, says Danielle Fagre Arlowe, spokeswoman for the American Financial Services Association, an industry trade group. Minimum payments mean “You’re prolonging the process and it’s costlier,” she says.

Carry a $5,000 balance and make minimum payments on a card with a 15 percent APR, and it will take 10 years to pay it off.

2. You’re denied credit
You’re sailing along financially. Or so you think.

But when you apply for a loan or new card, you’re rejected.

If  something in your credit is a red flag to lenders, that’s a good reason to put on the brakes and take a closer look, says McClary. It could be that your balances are too close to the limit, he says. Or, even if you’re not maxing out the plastic, the lender might believe your debt-to-income ratio is too high, he says.

One rule of thumb: Unsecured debt shouldn’t exceed 20 percent of your income, says McClary. But each lender has a different threshold, he adds.

Or it could be that you have too much available credit – even if you’re not using it. When you apply for loans or cards, many lenders will run a financial worst-case scenario, McClary says. What they want to know: If you went out tomorrow and maxed out every available card and line of credit, do you have the resources to make at least the minimum payments?

3. The volume of credit offers you’re receiving changes
“Have you seen a major uptick or downtick in offers of credit that you don’t have an explanation for?” says Arlowe.

If you get plenty of “preapproved offers” and they dry up after you put yourself on the “do not mail list” list, that’s one thing. But if they go away on their own – especially if neighbors or housemates are still getting plenty – it’s time to take a closer look at your debt load, she says.

Likewise, if you never get credit offers, but suddenly start receiving them (and you haven’t done something like buy a house or obtain a new credit card), lenders might see a crack in your financial picture and calculate that you’ll be shopping for credit to fill the gap, she says. “It’s really a less intuitive, but important, indication,” says Arlowe.

4. Too casual with the cards?
It’s easier to spend plastic than cash, says Nessa Feddis, senior vice president for the American Bankers Association. So you have to be careful when you pull out those cards.

“Seriously consider” if the purchase you’re about to make is something you want or something you truly need, says Feddis. “Is this something you’re going to be able to pay off at the end of the month?” And if not, is there an alternative? she says. If you need the item, is there a way to buy less, get it less expensively elsewhere, or reduce the cost?

5. You have 'too many’ cards
If you have a dealer’s deck of credit cards, you might also be shouldering too much debt.

“Do you really need six or seven credit cards?” says McClary. Realistically, if you have the cards you need – with good terms, adequate credit lines, and features or rewards that suit your needs – you really don’t need more than two or three, he says. But the more cards you have, the more potential for converting those unused credit lines into debt.

6. Money arguments with your partner
Another big early warning sign is “tension in the household over money management,” says McClary.  

If you and your spouse or partner are arguing over money – how you’re spending it, why you don’t have it, where the money is going if you don’t have enough of it – that’s a huge signal that you’re carrying too much debt, he says. And that “should be taken seriously,” says McClary.

7. You can’t handle the ‘hold’
You go to check in to a hotel or gas up the car. But, since your total isn’t known when you scan the card – the retailer levies a “hold.” While it can be $50 or $75 at the gas station, it can be considerably more at a hotel. But if you have enough to cover your stay or a full tank, but not the hold – your card could be rejected, says McClary.

And if you’re so close to your credit limit that a hold throws you over, “that could be a sign that you’re a little too close for comfort,” says McClary.

8. You can’t afford necessities
If you’re reaching for the cards just to cover necessities, that signals a problem. Whether card payments are eating the money you need or you’re grabbing the cards because you don’t have the cash you need, you definitely have a debt problem.

Another sign something is going wrong: You’re carrying balances on multiple cards, says Feddis. When you cut back in other areas to just make the minimum payments, “that doesn’t get you off the hook,” says McClary. “You will have the same problem next month.”

9. You don’t have a debt payoff plan
This one is a gut-check, says Arlowe. If you’re piling on debt, do you have a concrete plan for paying it off? And does that plan include curbing or completely halting your charging? Or are you just telling yourself you can stop anytime you want?

This is also where you need to be careful because the possibility for self-deception is high. Especially if you’re spending money you don’t have yet, like a raise or salary from a new job.

Anytime you’re incurring debt, you should always have a payoff strategy, “just to be financially healthy,” says Arlowe. “If you have debt and you don’t have a plan to pay it off, you’re in a way more dangerous situation,” she says. “And you may be in denial.”

With a payoff plan, if it’s realistic, even if you suddenly realize you have too much debt, Arlowe says, “at least you’re on the right road.”

See related: Debt shifting helps your score, but paying it off is better, Choosing a debt management program, Poll: More Americans expect to be in debt forever

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Updated: 01-20-2018