Debt can creep up gradually or hit suddenly due to unexpected circumstances. Millions of families live in some form of debt, whether they’re paying off a renovation, or have a car on finance. Sometimes debt can feel like a part of everyday life, but not everyone who has debt, is struggling with debt.
Here’s how to spot the signs that your debt has got out of control and how to recognise you might be struggling.
1. Living Payday to Payday
One of the most common signs of struggling with debt is living payday to payday. If you find that your entire pay packet is spent before the next one arrives then you might be having some money troubles. This cycle is hard to break and can often leave people relying on overdrafts and credit cards to get by throughout the month.
If this sounds like you, try to implement some changes ASAP before you end up trapped in a debt cycle.
2. Constantly Missing or Delaying Payments
Regularly missing or delaying payments on bills, credit cards, or loans is a significant red flag. Not only do late payments incur additional fees and penalties, but they also negatively impact your credit score. A poor credit score can make it more challenging to borrow at a good rate in the future, and can sometimes mean you can’t borrow at all. This is particularly unfortunate if you’re hoping to get a mortgage in the near future.
3. High Credit Utilisation Rate
Credit utilisation refers to the ratio of your credit card balances to your credit limits. A high credit utilisation rate (typically above 50%) can indicate that you are overly reliant on credit. This situation not only signals financial strain but also adversely affects your credit score, making it more difficult to manage existing debt. Ideally, if you take out any sort of debt, you should aim to pay it off before taking out more.
4. Borrowing to Pay Off Debt
Using new loans or credit cards to pay off existing debt is a clear sign of financial trouble. This practice, known as “rolling over” debt, can lead to an unsustainable debt spiral. Each new loan or credit card comes with its own interest rates and fees, which can quickly add up and become unmanageable. Also, if you credit score has become worse from the amount of debt you’ve taken out, the rates that you borrow at will probably be high too.
5. Feeling Overwhelmed by the Amount of Debt
Feeling overwhelmed by the amount of debt you owe is a psychological indicator of financial distress. This feeling can manifest as anxiety, stress, or even depression. If you find yourself frequently worried about your financial situation or losing sleep over debt, it’s a sign that your debt levels may be unmanageable. If you feel overwhelmed, it’s important to seek professional help – places like MoneyPlus Advice have a wealth of knowledge and might be able to advise you.
6. Receiving Collection Calls and Notices
When you start receiving collection calls or notices from creditors, it’s a clear sign that your debt situation is severe. Creditors typically resort to collections after multiple missed payments, indicating that the debt has been outstanding for some time.
7. No Savings or Emergency Fund
Lacking any form of savings or an emergency fund is a strong indicator that you may be struggling with debt. An emergency fund is crucial for covering unexpected expenses without resorting to credit. If all your income is going toward debt repayment and daily expenses, leaving nothing for savings, it’s a sign of financial imbalance.
8. Declining Credit Score
A declining credit score is a quantitative measure of your financial health. If you notice your credit score steadily decreasing, it’s likely due to high credit utilization, missed payments, or increased borrowing. Monitoring your credit score regularly can provide early warnings of financial trouble.
9. Relying on Payday Loans or Cash Advances
Payday loans and cash advances are often used as a last resort for those in financial distress. These loans come with extremely high interest rates and short repayment terms, which can lead to a cycle of borrowing and escalating debt. If you find yourself frequently relying on these options, it’s a clear sign of financial struggle.
10. Inability to Afford Basic Necessities
Struggling to afford basic necessities like food, housing, and healthcare due to debt payments is a severe indicator of financial trouble. If you have to choose between paying off debt and meeting essential needs, it’s crucial to seek financial advice and assistance.
If you notice you’re struggling with any of these issues, then it’s time to assess your financial situation and seek help before things get out of hand.