Four Signs You’re Carrying Too Much Debt

There are a lot of reasons we take on debt. From student loans to medical expenses, mortgages and car loans, it’s rare to meet someone who is completely debt-free. Some of us even insist that taking on debt is a positive thing, because it helps us build our credit score.

Moderate amounts of well-managed debt aren’t automatically a problem, but if you notice any of these four signs, you’re likely carrying too much debt, and it’s probably time to concentrate on consolidating and reducing it. 

1. You’ve been turned down by a lender

It’s shocking how much debt you can get yourself into. Many lenders will continue to lend to you even if you’re already carrying a lot of debt. If your income is reasonably high (and secure) and your credit report doesn’t raise any red flags, you’ll likely still keep getting approved for any loans and credit cards you apply for. 

Having lots of debt but never missing a payment will actually potentially keep your credit score healthy. Then one day, it’s possible you’ll get a shock. You’ve applied for credit one too many times, and you get turned down. It’s possible to get turned down for other reasons of course, but if you already have a lot of debt, being refused a loan or credit card can be a sign things have gone too far.

2. You pay everything on time but only ever make the minimum payments

Many people think they have debt under control because they ‘never miss a payment’. They also make minimum payments on absolutely everything, including a wide array of credit cards and store cards (the average American has four credit cards – many have more).

As we’ve already mentioned, making all your monthly payments can look good on paper, and even help keep your credit score looking reasonably healthy. It indicates that you’re ‘good at being in debt’ in as much as you take on a lot of debt, and pay it back, with vast amounts of interest, which is of course where the problem lies.

Making minimum payments on everything means you’re not making much of a dent in your debt, and could be going into more debt every month. Making minimum payments on high credit card balances at up to 19% APR means you’re paying mostly interest, which is probably fine with your credit card company, but not good for you.

3. You always borrow to the max

Just because you can borrow a large amount of money doesn’t mean that you should. Credit is tied to income, so in theory, those who are able to borrow a lot of money, should be the ones who don’t need to. This isn’t fair, of course, but it’s simply how credit works. If you’re on a high income you can borrow a lot. On a lower income you’ll be much more restricted.

Some people, however, always borrow to the max. They get the biggest mortgage they can, along with the biggest car loan, and they still manage to hit their spending limit on their credit cards by the end of each month. This is why even people on high incomes can still end up living paycheck to paycheck, because being on a high income doesn’t make you wealthy. Good money management skills make you wealthy.

Whether you’re on a high or low income, always borrowing the absolute maximum offered to you will keep you poor. It means all your money will be going to repayments, and interest payments, not to savings and investments. Even if you’re on a high income, if you’ve always borrowed everything you’ve been offered, you’re almost definitely carrying too much debt.

4. You’ve lost track of what you owe

This is a dangerous situation to be in, for two reasons. Firstly it means you probably owe a lot, to a lot of different lenders. We lose track of what we owe when we’re not only making significant repayments each month, but also lots of little payments, usually across different credit cards and store cards.

Secondly, it’s a sign you’re burying your head in the sand, and have stopped (or perhaps never started) tracking your debt, repayments and interest rates. Knowing what you owe can be scary, but it’s the first step to drawing up a plan to get that debt paid off.

What to do next?

Getting out of debt is never easy, but it can be surprisingly straightforward. There are a few different ways to approach it, and they all involve fairly simple formulas. Finding the money to pay off debts is the hard part, but putting a plan in place as to how to tackle your debts, and in which order, is easier. Ben le Fort talks about three formulas to tackle your debt, here. You could also contact a non-profit credit counselling service, such as the National Foundation for Credit Counselling, for advice on how to consolidate debt and start paying it down.

No matter what your income, there is probably a plan that you can put in place today. It’s just a matter of taking the first step.