Debt can be a wonderful thing. Many of us don’t have lump sums of cash lying around to purchase cars, houses, or even groceries. Borrowing money allows us to make purchases in smaller increments over time.
The only problem? Sometimes, we get carried away or we are confronted with an unexpected financial emergency, and our debt spirals out of control. So, how much debt is too much debt? Here are 5 warning signs.
1. Your Debt-to-Income Ratio is too High
Debt-to-income ratio (DTI) compares your total monthly debt payments to your monthly income (i.e. before taxes). Therefore, to calculate DTI, divide your monthly debt payment by your gross monthly income.
For example, if you pay $2,000 a month for your mortgage, $200 a month for an auto loan, and $300 a month to pay off your other debts, your total monthly debt payment is $2,500. If your gross monthly income is $5,000, then your debt-to-income ratio is 50% (2,500 divided by 5,000 equals 0.5).
The Consumer Financial Protection Bureau recommends that homeowners maintain a DTI for all debts of 36% or less (including your home mortgage) and between 15-20% for renters. Generally, a DTI of over 43% will disqualify you from obtaining a mortgage.
If your DTI is over 36%, you should create an action plan to start paying off your debts more aggressively.
2. You Can Only Afford Minimum Payments
Many debtors opt to auto-pay their minimum payments and forget about paying their remaining balance. This means that you are taking longer to pay off your debt and paying more in interest over time.
Start tackling your credit card debt by focusing on the smallest loans first and working your way up (snowball method) or focus on those debts with the highest interest rates first and work your way down (avalanche method).
If you simply can’t afford more than your minimum payment, then it may be time to consider debt resolution by contacting a debt relief company (more on that later).
3. You Don’t Have any Savings
Borrowers often have to siphon funds from their savings to pay off their debt. Without some kind of cash account to fall back on, you are forced to use credit for minor expenses and sudden emergencies.
This precarious financial situation means that you are always one fender bender away from landing yourself in a pit of debt requiring outside help to escape. Consider the lack of a cash buffer or a dwindling savings account as a warning that you have a dangerous amount of debt.
4. Your Collectors Won’t Stop Calling
Perhaps the only thing more irritating than getting calls from scammers is answering your phone only to hear a debt collector on the other end. The more debts you owe, the more calls you may receive, and the more pressure you will feel to make payments you simply can’t afford.
If a collector calls you, realize that you are under no obligation to speak to them if you are busy. Furthermore, don’t agree to pay or admit to the debt before confirming that the amount is accurate and the debt is yours. Finally, you don’t need to give information about your income, debts, or other bills, and you can simply hang up if you want.
5. You Can’t Pay Back Friends and Family
Borrowing cash from our friends and family typically doesn’t come with interest charges. However, as you get further into debt and become more reliant on asking your loved ones to spot you, you will eventually run out of people to ask for help and resentment will build.
That’s when you know it’s time to ask for outside help.
Help for Those With Too Much Debt
If the above warning signs sound familiar to you and you feel like you are up against a wall, it may be time to reach out to a debt relief company. A good debt relief company will handle your creditors and help you build a strategy to get your debt under control.
Trust and experience are what make a good debt settlement company. Americor has relieved $2 billion dollars in debt over 30 states. They are fully accredited by the Better Business Bureau (BBB), the American Fair Credit Council (AFCC), and the International Association of Professional Debt Arbitrators (IAPDA). With over 400 employees Americor can tailor the optimal solution to your situation and help you navigate these uncertain financial times.
Determine if you qualify for debt settlement, get a free debt analysis to determine if debt settlement is viable, and receive credit counseling by talking to a certified debt consultant today.
Click here to apply: https://apply.americor.com/new
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