5 Warning Signs of Debt Problems
What is debt?
Essentially, debt is money owed by a borrower to a lender. It is utilized by numerous individuals and companies to make substantial purchases that cannot be afforded under typical conditions; however, it can get complicated quickly if it is not monitored or managed well. The lender provides money to the borrower under the condition that it will be repaid later, with interest.
If you are wondering whether you have excess debt, there's a high possibility that you do. Having an excess debt can prompt other monetary issues, such as not being able to set aside extra cash, missing bill installments, and obtaining more cash just to remain afloat. Here are a few signs that you have more financial obligations than you can handle.
1. Collection calls/Past due notices When debt collectors start calling you, your debt has become delinquent and presumably unaffordable. They may threaten you with things like wage garnishment or repossession of property to recover the funds owed. Regardless of whether cash isn't an issue, missing payments is. Debt issues are more than just lacking funds —if you are not organized enough to make payments on time before you to get sent a collector, you have a debt issue, regardless of your financial situation.
You might be able to dodge the collector’s call for a while; however, do not underestimate your creditor and collector – they may choose to sue you for what you owe. If they are successful with their lawsuit, they may get the court's authorization to embellish your wages or levy your bank account.
Additionally, be mindful when communicating with collectors, as you may commit yourself to payments you do not really owe. Seek expert help from a credit advisor to get familiar with your choices for debt repayment.
2. Paying one debt with another
If you are transferring balances from one card to another to stay afloat or seeking loans from different companies to payoff other loan balances, you have a debt problem. It may appear to be a good idea, but it has a high potential to end in a financial disaster. Depending on the terms of your new loan, it is possible you may end up paying more in interest over the life of the loan than the terms of the debt obligations that you consolidated, despite the monthly payments being lower.
Before taking on new debt to repay existing debt, you will need to address the underlying causes of your debt problem and change your spending habits so your financial situation will improve.
3. Loan denials
If your request for a loan is denied or if you can only get a loan under very poor terms, stop and reevaluate your situation. If your excess debt causes a lender to deny further credit to you, you have a debt issue. Review your credit reports and correct any inaccurate or outdated information, then create a strategy to pay down balances to improve your debt-to-income ratio and increase your creditworthiness.
Lenders want to provide cash to individuals that they know are highly likely to repay. If you have a high debt load, that will lead to loan denials as lenders may question your capacity to pay.
4. Being unaware of the amount you owe Do you know how much debt you have and what it will it take to be totally debt free? If you have more than one credit cards, do you know the amount you owe to each and have a plan to clear the balances? If you do not have the answers, you have a debt issue. Once more, regardless of whether you have a lot of cash, not paying your debt in a timely manner is an issue. Also, if you are purposely avoiding opening your credit card bills or checking loan balances because you do not want to see how bad things are, then you already know you have a debt issue, and it is time to tend to them.
Knowing where you stand is the initial move toward getting on track. Trying to escape your financial obligations does not make them disappear. Request your most recent account statement from your creditors and list your debt so you know what you owe and create a plan to clear the balances.
5. Difficulty making payments on time
Paying late is a sign that you do not have adequate cash in your budget as most of your income is eaten up by spending habits and other bill payments. Unfortunately, paying late only makes your debt problems worse as late charges are added, and your account will go in default if the payments are not made. Create a budget for your monthly spending to figure out what can be eliminated to make your debt payments on time.
What to do?
Your initial step might be to contact your lender and collector to check if they are willing to work out a payment plan by lowering your payments and/or interest rates. Review your personal expenses and check if you can generate extra income by working overtime or finding a second line of work. Review all your expenses and balance your household budget enough to clear your debts. Additionally, seek credit counseling from professional financial advisors to help you get your finances on the right track.
At Regions Financial Services our clients are our priority. We provide sound financial advice at no cost – a service that can help you with managing your funds as well as setting and achieving your financial goals. If you need relief from your high-interest loans or credit card debt, consider a personal loan from Regions Financial Services. We provide personalized debt-consolidation loans with low-interest rates to refinance your debt into a lower-interest loan with one fixed payment, which will put you in a better financial situation.