Warning Signs That Your Debt Is Getting Out Of Control

If you’re like most folks in the United States, you may have some debt. For may people, some debt is fine. But for others, it can be a real financial burden. Is your debt getting out of control? Read further to see if it it and learn about some tips for getting your debt back in check.
Warning Signs for People With Debt
The following symptoms or conditions may indicate your debt is out of control:
  • Your debt is causing you stress, even to the point of losing sleep.
  • You are not saving regularly from you paycheck because you need the money to finance your debt.
  • Your emergency fund has run out and your debt is still out of control.
  • You use your credit cards to pay off debt and now they are maxed out.

If these or other emotionally painful experiences are haunting you, you may need to get a better handle on your debt situation.

Types of Debt
Everyone is different so that means that there is no one hard-and-fast rule regarding how much debt is too much for any one individual or family. Nonetheless, it is often useful to think in terms of three types of debt: Good Debt, Bad Debt, and Toxic Debt. Let’s examine these:
  • Good Debt: Debt that is taken on to buy something that generally increases in value, such as a home or business.
  • Bad Debt: Loans taken on at very high interest to buy things that decrease in value or are rapidly used up.
  • Toxic Debt: Debt with sky-high interest rates and/or debt you simple cannot afford.

Debt/Income Ratio

A good yardstick to use when thinking about your debt is your Debt/Income Ratio. If it is 15% or less, you are likely using debt wisely. If it is greater than 50%, you are likely having a problem with too much debt. What is your Debt/Income Ratio?

Tips for Effectively Managing Your Debt

Here are some useful tips to keep in mind when considering taking out a loan for several common needs or wants:

  • Housing: Limit your housing costs to 35% of your income or less. If it is too high, consider refinancing your mortgage.
  • Cars and Other Vehicles: Most experts suggest that car loan expense should remain below 20% of your take-home pay. If your debt level is beyond this consider refinancing or buy a less expensive vehicle.
  • College and Other Education: Here’s a simple rule: Don’t borrow unless you have to! If you need to finance your college or trade-school education, take on no more debt than you expect to earn in your first year working after college.

In conclusion, debt can be a good thing or a real detriment to your financial well being. By considering the type of debt you are incurring, and by calculating your Debt/Income Ratio, you may be better able to assess your risks. Above all, stay away from Bad Debt and especially Toxic Debt.