Being in debt is no fun at all. As life problems go, debt might not be the worst one out there, but it can certainly feel like it, keeping us up at night and invading our thoughts with negativity and despair.
Still, as rotten as it feels to owe more money than you have, it’s important to remember there are always solutions to your debt woes. By taking concrete actions to improve your overall financial health, you can relieve the stress and insecurity of debt.
If you’re wondering whether you might have a debt problem, here’s a look at four warning signs, and some helpful solutions.
You don’t have any savings
A common financial rule of thumb says it’s important to stash away between three to six months’ worth of salary in an emergency savings fund. The idea is to have access to cash that can cover you in case of job loss, health problems, or other unexpected costs.
If you don’t have any savings, let alone an emergency fund, it means your spending needs to be reined in before you drown in debt. Start by making a budget that lists every single regular expenditure you have and see how it compares to your income. Cut out unnecessary spending on clothes, travel, restaurant meals, and entertainment, and look for ways to reduce unavoidable costs, such as utilities and grocery bills. Stop using your credit cards as much as possible and only use cash or debit cards for purchases to avoid spending more than you can afford.
You can’t get a loan (or favourable terms on borrowing)
We all need to borrow money every now and then, whether it’s to buy a new car, help pay for a home renovation project, or something else. But if you’re being turned down for loans, or can’t borrow without paying particularly high interest rates or facing other unfavourable terms, it’s probably because lenders look at you and see a debt rise.
To make borrowing easier, you’ll have to address your low credit score. Start by requesting a copy of your credit report and see where and why your credit is being dinged, then start tackling those trouble spots and eliminating debts. In a previous blog, we wrote about three strategies for debt repayment: the Avalanche method, the Snowball method, and debt consolidation.
You only make the minimum payment on bills (or miss payments entirely)
Making the minimum payment on credit card bills might keep your account active a little longer, but it won’t do much of anything to help your debt situation, because your balance owing will rise rapidly due to punitive interest rates. Even a modest balance can take years or decades to wipe out if you only pay the minimum each month.
Likewise, making late payments or missing payments entirely is a clear sign you don’t have enough cash to address your obligations, and that you need a different approach. Examine your spending and cash flow situations and look for any extra money that can be directed towards high-interest debt, or bills for important utilities, such as heat and electricity. Make a plan to tackle your debts, and work to eliminate them one by one.
You don’t know the specifics of your debt situation
Being aware of one’s debt and actually understanding the full scope of the issue can be two different things. When it comes to debt, ignorance seldom leads to bliss. You can’t get out of debt unless you know exactly how you got there, how much you owe, and can come up with a workable plan to pay it back.
Consult a debt specialist or trusted financial advisor for help. Seeing the numbers in front of you turns your debt problem from an abstract monster into a more manageable issue. You will see the impact of your spending decisions and understand how changing habits will eventually help you slay the debt demon.