Debt is a stressful problem that can seriously impair one’s financial future. This is because debt results in interest, a lack of funds, and an inability to reach milestones such as owning a home or retirement. There are a number of signs that one has a problem with debt with three of the major warning signs being debt-to-income ratio, difficulty paying bills, and not being able to keep track of debt.
Debt-To-Income Ratio
One of the surest signs that one has a problem with debt is debt-to-income ratio. This ratio compares how much one owes vs. monthly income. In general, the lower debt to income ratio is better with the goal of having no debts.
Most lenders consider over forty percent debt-to-income ratio being too high. However, it is important to look at different kinds of debts when looking at debt-to-income ratio. High-interest credit cards are the worst kind of debt with lenders considering this to be the primary form of debt. Most lenders will forget about other kinds of manageable debt. This includes such things as mortgages or low-interest student loans.
One of the best ways to get out of problem debt is to reduce credit card based debt-to-income ratio by cutting expenses and working more.
Difficulty Paying Bills
A big sign that one has problems with debt is not being able to meet regular bills. This can result in late fees, increased debt, and a damaged credit report. Not being able to meet monthly bills also means that one will not be able to meet emergency expenses that will require them to take on more debt to cover them.
People who have trouble meeting monthly bills need to make a budget that includes all of their monthly bills. This will allow them to cut out some bills while making sure that they don’t rack up more debt trying to pay their bills.
Don’t Know How Much You Owe
Not knowing how much one owes a very big sign that one has a problem with debt. This is a sign that one feels like they can’t manage their debt while having not done anything to take care of it. One of the first things one should do is to make a careful inventory of all the debt they have. This will allow borrowers to make a plan to get out of debt.