|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
Do you know the signs of when you are in over your head with credit card debt? Learn the signs and take these steps to get you back on track.
How to Spot the Signs That You Might Be Living Beyond Your Means on Your Credit Card
It’s not that difficult to know when you might be living beyond your means on your credit card. By definition, you are living beyond your means when you need a credit card to fund any part of your lifestyle. But it doesn’t usually dawn on people that they have a real problem until they are knocking on the door to credit card hell. With an average balance of nearly $16,500, millions of Americans are knocking on the door of a life of financial servitude and dashed dreams. You don’t have to be staring into the abyss before realizing you have a problem. You just need to look out for the following signs.
You Carry a Balance on Your Credit Card
If you carry a balance month to month, it means you are spending more than you can afford. It may have started innocently enough with a small splurge and the rationalization that you would pay it off in a few months; but, because you are spending money you don’t have, it isn’t easy to find the money to pay it off. Soon, you get accustomed to carrying the balance and build the monthly payments into your budget.
You know your credit card balance is getting high when you don’t bother to check it because you know you can’t pay it off anyway.
You Can’t Pay Any More than the Minimum Payment
If you continue with your spending habits using the credit card to pay for things you can’t afford to pay for with cash your balance increases. Unless something changes with your income or your budget, you will continue to carry a balance, and it will grow. When your balance grows to $5,000, and you can only afford the minimum payment, you will spend more than $8,000 over 13 years to pay off the balance. When you start living your life making only the minimum payments, it’s time to reevaluate your lifestyle.
You Play the Credit Card Shuffle
The credit card shuffle is like robbing Peter to pay Paul. You juggle payments between the cards because you don’t have enough money to make the payments on time. You might make a payment on one card and take out a cash advance to pay another card.
You Can’t Qualify for a New Credit Card
One of the first things people do when they get into credit card trouble is apply for another credit card. The day finally comes when you can no longer qualify because you’ve run up your credit utilization and you’re only making minimum payments, which causes your credit score to fall. If your credit card spending results in a late payment, you’ll have trouble getting another credit card for a while.
Budget? What Budget?
You may start out with a budget, but when you start using credit cards to meet your living needs, the budget becomes obsolete. A part of it is denial because you don’t want to see how badly you’ve blown your budget. The other part is the recognition that you can’t afford the lifestyle you are pursuing. If you had stayed strictly within your budget, to begin with, you wouldn’t be in the mess you’re in. Getting back on a budget is the only way out of the problem.
You Have No Savings
This really should be your first clue. If you aren’t saving money for an emergency or your financial future, you could be on the road to financial ruin, especially when you carry credit card debt. What happens when you do have an emergency your car blows up, or you have a significant medical emergency and can’t work for six months? You need to put your lifestyle pursuit on hold until a six to 12-month cash reserve has been built up, and you have the ability to set aside 10 percent of your income in savings.
When You See the Signs
The worst part of getting into credit card trouble is it’s a lot like getting into quicksand. Unless you do something immediately to get yourself out, you will only struggle and sink further. At the first sign, you should take these essential steps to correct the problem and turn things around.