Know the Signs: 5 Questions to Ask About Your Credit Card Debt
- January 4, 2021
- Understanding your debt situation, including your overall credit card balances, is important for your personal financial health and long-term financial stability.
- When you understand your unique financial picture, you can assess how to clear out any high interest debt, avoiding any situation where a significant portion of monthly payments are going toward interest rather than reducing the principal amount owed.
- Suggested here are five fundamental questions to ask about your debt, ultimately paving the way for a more stress-free financial future.
As rising interest rates continue, it can be a good time to consider questions about your credit card debt.
Many people take stock, review achievements and challenges, and make a plan for a positive new year.
If you are dealing with additional or unexpected debt, you’re not alone.
You may have needed to use credit cards to manage your bills, and now may be wondering how it has affected your financial picture. Most of us have experienced challenges with managing debt at some point. However, if you create a plan, you can pay down debt, save money on fees and interest, and make progress toward your financial goals.
As outlined in the video above, there are five signs that signal your debt may become a challenge. These cautionary signs can help reveal opportunities to improve your financial health and wellness.
Can you answer “Yes” to any of these questions?
1. Are you unsure of the amount of debt you owe to lenders?
Some people find managing $1,000 dollars of debt a struggle, while people with higher incomes can easily manage quite a bit more. If you do not know your total debt, and your debt-to-income ratio, that can be very telling.
As we look to manage debt in a time of rising interest rates, getting a clear picture of how much debt you have is the first step in creating a healthy plan to financial wellness.
2. Do you pay only the minimum monthly payment?
Most credit card statements include a chart outlining how long it is going to take to pay off the debt. Seeing in print that it will take 10 to 15 years to pay off debt can be very stressful. It is also a clear warning sign that you may need to develop a positive plan to pay more than the minimum.
Many people find it helpful to understand how to use credit cards wisely. Paying only the minimum each month extends how long it takes to wipe out your debt and adds considerably to the amount of interest you pay. Minimum monthly payments can be a short-term approach to dealing with financial troubles — because you are keeping up on bills — however making more than the minimum payment each month helps avoid digging yourself into a financial hole.
2. Set Goals
If you are saving for an emergency home purchase or paying off high-interest debt, a simple plan will help you meet your goals. As an example, by managing debt, you ensure that your financial well-being does not suffer.
It is not uncommon for people with credit card debt to only pay the interest on the amount borrowed, instead of planning to eliminate the debt altogether. When considering your overall financial picture, consider a deb management plan.
3. Do you take credit card cash advances to help pay bills?
If you are facing uncertainty about how to cover costs for monthly living expenses, one tempting “quick fix” is a credit card cash advance, especially in the face of unexpected income loss or other emergency situations.
But keep in mind, cash advances will have a higher Annual Percentage Rate (APR) than standard purchases. Also, credit card companies often charge a transaction fee on the borrowed amount. This can add a lot to the cost of borrowing, making it even more difficult to pay off in the long run.
4. Are you maxed out or over the limit on credit card balances?
As you reach limits on your credit card, minimum payments increase, and often your creditor will raise your limits, which adds to the potential for even greater debt.
If you’ve hit the maximum amount on credit cards, it is time to take a hard look at where your money is going and make a plan to change any habits that are not beneficial to your financial health.
Maybe you spend too much of your income on housing, car payments and living costs. It may be time to reevaluate. Or the solution may be as simple as reducing overspending on entertainment and discretionary items like new clothes or travel, until you have your budget under control.
Replacing your old habits with new, healthy ones can help you pay that debt down.
5. Are you getting collection calls?
Ignoring calls from debt collectors won’t make them go away, and can impact your credit report. However, it is a strong indicator that it’s time to make a solid plan on what to do next. Engaging a debt counselor can help you develop an agreement between you and your creditors that can consolidate the full amount of your loans at a lower interest rate or for a longer repayment period. It can get you back on track much quicker and relieve the stress that you may have been experiencing.
Asking yourself these five simple, but sometimes challenging, questions can help you recognize you may need help and identify the areas you need to address first.
To explore other options, consider a free consultation from someone who has your interests at heart. We can help you learn about various debt repayment strategies, educate yourself on how much debt is too much, and how to avoid debt problems in the future.
Our NFCC-certified counselors help you start the conversation about where you are today, and what you need to accomplish your goals.
We guide you through a process to assess your financial situation, understand where you are headed, and create an action plan to work toward a more positive financial future.
We listen with respect, offer advice and information that could help you meet your needs.
Julie Rogier (She/Her)
With a multi-decade career in communications, Julie Rogier serves on GreenPath’s content marketing team. She has presented on financial wellness for groups including the 2021 and 2022 Financial Services Midwest Summit, and regularly writes about financial health and wellness for several publications including U.S. News and World Report.
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Douglas of Saint Ignace, MI via ConsumerAffairs.com
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