Telltale Signs Debtors Could Be Dealing with Too Much Debt

There are many dangers associated with too much debt, and chief among them is the potential for financial ruin. If a debtor fails to commit to their monthly payments, they’ll be hit with late fees, increasing the amount putting them further in debt. Over time, these implications on their credit history can also lead to further disadvantages in securing loans

With cost of living benchmarks always on the rise, these fees can pile on and catch debtors unaware. For this reason, it’s best to know when to pause with the spending and reassess financial strategies.

Here are some ways to know if debtors could be dealing with too much debt:

1. Transferring Balances

With the majority of a person’s debt held at a high interest rate, it might be tempting to switch it to a loan with a lower interest rate. The problem is that this often results in transferring the debt from one loan to another.

If debtors are transferring balances between different credit cards or loans, they’re likely in over their heads. It’s a sign that one could be trying to get out of paying off their debt, but it’s only making it worse, because as soon as balance is transferred, interest begins to accrue, and debtors will be forced to find even more money in order to make payments.

2. Monthly Minimums are Too High

Rather than keeping monthly payments on credit cards, loans and other forms of debt manageable, debtors are likely to be tempted to pay less. This means they’re going to have to pay higher interest to stay afloat.

The ideal ratio of minimum monthly payments to principal is 25 percent, which means 25 percent of the principal should be paid every month. If a debtor is paying less than that, they could be in trouble.

3. Being Hounded by Debt Collectors

The longer a debt goes unpaid, the more stressful it is to handle. Debt collectors could get involved or worse, debtors could face legal issues. Although it feels unpleasant to be hounded by a debt collector, things could take a turn for the worst once a debtor gets sued.

If debt collectors are following up, sending letters, or making threatening calls, it may be time for debtors to rethink spending habits.

4. Using Home Equity as a Lifeline

Another way to tell that a person has too much debt is if they’re relying on home equity to consolidate it. Although this might be able to help consolidate debt, this also means taking on a mortgage with an interest rate that is likely higher than the rate being paid on the existing debt. 

That’s only the beginning, too. If a home loses value or is placed in foreclosure, debtors will have to pay back both the mortgage and their debts, minus the equity they’ve lost in their home.

Conclusion

Trouble dealing with debt does not have to lead to bankruptcy. There’s always hope through attorneys that can help debtors navigate the process and protect their financial future. If debtors believe they still have a fighting chance, credit counseling can help present them with viable options like debt consolidation, negotiation, and financial coaching.

Manage debt with the help of credit counseling services! Everyone has a chance to become debt-free with consulting services and debt solutions specifically tailored to every unique situation. Consult with us today!