How To Know You Are In Too Much Debt
Debt can quite easily be crippling. The decision to get into debt is motivated by many factors and motives. However, the basic reasoning of getting into debt is this; you want money, you don’t have money and so you decide to borrow it from someone who does. A big problem for most borrowers is that debt is not free. You will end up paying more than you borrowed. It is therefore important to know when you have too much debt and need to control it.
But, you already know all that. The reason you are reading this is, you want to know if you are in too deep. Well, here are some indications to help you know.
1. You Want to Save, but You Can’t
Most people desire to and try to save some money. It can be for a vacation or simply a buffer that will provide some support when tough times come. Other people just don’t save, even when they have the opportunity to do so (bad idea by the way). This sign is for those people who want to save but they are prevented from doing so because they are unwillingly committed to repaying what they owe. Saving is not just peripheral, but if you should even try it, it would result in losses more than gain. If you find yourself in such a situation, you should probably reconsider taking that additional loan.
2. Your repayments are more than 20% of your income
There is a rule of thumb that states that credit should not go beyond 20% of your income. This is without other expenses such as rent and utilities. If you find that your monthly repayments are more than 20% of your income, then know that you have too much debt.
3. You Can Only Afford to Pay the Bare Minimum
With debt, you would want to clear it as fast as possible if you can. Therefore, some people opt to pay more than their minimum so that in the end they pay faster and it becomes less expensive. If you find that you are just barely paying your minimum requirement, this is a good sign that you have debt that you can’t afford.
When you are paying more in order to offset a debt,it is a way of self-denial that is aimed at future gratification. On the other hand, barely affording to make payment is forced self-denial with no benefit in sight. One person is living while the other is surviving.
4. You Borrow More to Pay-off What You Owe
The minute you see that you are borrowing more money in order to pay debt, you are too deep into debt. Remember that debt is not free. You may be able to pay that debt but you just made new debt that will cost you more since you have to pay the interest off the old debt.
5. You are Selling Stuff to Pay Your Debt
This is probably the biggest sign of all. If it gets to this, you need to ask for help from friends and family and then get someone to help you budget.
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