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7 Signs You May Have Too Much Debt

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Many Americans must (and regularly do) borrow money to reach important goals, such as attending school, purchasing a car, and buying a home. Even credit cards, when used responsibly, can help us quickly manage those small, one-off unexpected expenses. So, while having a manageable amount of debt for the right reasons is normal, too much of the wrong kind of debt can make us feel out of control of our financial lives.

Defining a healthy vs. unhealthy amount of personal debt isn’t always about how much you owe. Instead, a better indicator of whether you have too much debt might be the type of debt you’re carrying, and how it makes you feel. If your debt negatively affects your overall financial well-being or keeps you up at night, that’s a good indicator you could use some help.

In This Article

How Much Debt Is Too Much?

A good benchmark to understand how much debt is too much is your debt-to-income ratio. This measure is the sum of all your monthly debt payments divided by your gross monthly income. Here’s an example: Say you pay $1,500 a month for your mortgage, $100 a month for a car loan and $500 a month to cover the rest of your debts. If your gross monthly income is $6,000, then your debt-to-income ratio is 35% ($2,100 divided by $6,000).

It’s important to run the numbers anytime your debt level or income changes. This is because research suggests people with debt-to-income ratios higher than 43% are more likely to struggle with monthly payments, according to the Consumer Financial Protection Bureau (CFPB). That top-line 43% threshold is also important because it’s often the highest ratio lenders will accept. (And many lenders consider at or below 36% a good debt-to-income ratio for certain loans or lines of credit.)

To start taking charge of your debt, identify where you stand—before a debt crisis looms. Here are seven ways to tell if you have a debt problem and steps you can take to manage it.

7 Signs You May Have a Debt Problem

1. Juggling bills

When people have trouble paying a bill or expense, 34% skip a payment or pay another bill late, according to a recent survey by the CFPB. And that was before the COVID-related financial crisis hit. If you find yourself prioritizing which bills will be paid this month and which ones won’t, this means you’re missing payments and deepening debt levels.

Not only can this hurt your credit score, but it's a warning sign your money life isn't balancing quite right. If you’re living paycheck to paycheck, or if just thinking about paying bills makes you feel anxious or scared, you could have a debt problem, a budgeting problem, an income problem—or a combination of all three.

2. Spending more than you earn

If you aren't sticking to a budget or don’t have one, it's easy to start living beyond your means. Debt accumulation due to medical costs is one thing. But for many, racking up credit card debt with compulsive online shopping isn’t just an obsession; it’s a serious addiction that can lead to a debt crisis.

3. Unable to save

High debt payments mean you’re not able to contribute to your emergency savings, put money aside for retirement, or save for long-term goals. Over time, this situation may lead to a financial crisis, right at the time in life when you need financial stability and security.

4. Unable to borrow

If your existing debt affects your credit score, it can affect your ability to qualify for a good interest rate or borrow money when you really need it. For example, maybe you keep getting turned down for a new auto loan, or lenders offer you only very high interest rates.

5. Making only the minimum payment

If you're paying only the minimum on your balances, you’re paying mostly interest. You may be making regular payments, but your statement balances (and principal amount owed) aren’t decreasing.

6. Feelings of embarrassment or defeat

You have feelings of hopelessness or shame about your money situation. Maybe you're hiding how much debt you’ve accumulated from your family (and why). Or perhaps you’re feeling bad about needing to use your credit card to pay your household bills (utilities, rent).

7. Arguing about money

Debt problems can quickly strain health, relationships, and quality of life. If you’re losing weight, losing sleep, or fighting with your partner about money and debt, it’s time to take action.

What You Should Do If You Have a Debt Problem

While even just one of the seven signs above could signal a debt problem, it doesn’t mean your there’s no way out. Accepting that you’re having difficulty is the first step to achieving a solution. Here are some smart ways to tackle it.

Face the facts

Being able to view your circumstances objectively is key to understanding how to solve any problem. Write down how much you owe, take a hard look at the interest rates applied to each type of debt, and the minimum payments. Calculate how long it will take to pay off each debt if you keep making only the minimum payments.

Find some quick wins

Look for small balances you can pay off right away. Use micro-actions to help you stick to a budget. Pick up a part-time job or side hustle. Put a change jar by the front door. Doing something that makes you feel like you’re making progress can boost your self-confidence and improve your mood and your outlook. Restoring hope is a powerful thing.

Fix your financial infrastructure

If you don't have one, now is a good time to create a budget. The first step is drilling down on your income and expenses and plan how you’ll set money aside for an emergency. Once that’s under control, strive for longer-term savings and retirement. Creating a solid financial foundation takes time. Set small, achievable goals and be patient.

Forgive yourself

Whether the debt levels you accumulated came about due to factors beyond your control or spending habits you’re working to improve, self-compassion and self-care is crucial. Feeling guilty only makes it hard to stay motivated while you try to make things better.

How to Manage Your Debt Problem with Debt Consolidation

While credit card debt has been steadily decreasing since the onset of the pandemic, 25% of Americans say credit card debt remains a source of daily stress.

To overcome debt problems, many LendingClub customers have used a personal loan. By consolidating high-interest debt, you can lower your rate, improve monthly cash flow, and pay down balances faster. Here’s a look at what a debt consolidation plan can do.

Simplify with a single payment

A personal loan can consolidate your debt from multiple credit cards or other high-interest loans into one manageable payment. With a debt consolidation loan, you’re refinancing your debt by essentially swapping out your costly debt balances for a loan with a fixed rate and term—paying off multiple bills all at once. And that benefit can save you money and time by potentially lowering overall monthly expenses and reducing the stress of juggling bills.

Get an affordable, fixed rate

Whenever you can lower your interest paid, you’ll likely reduce your debt faster. And with a fixed-rate loan, your interest rate and monthly repayment stay the same from month to month and never increase. That differs from a variable-rate loan, for which the interest rate and APR may change as the market interest rate changes.

Eliminate high credit card fees and improve your credit score

Depending on your credit profile, a debt consolidation loan could help improve your credit by diversifying your credit mix, proving that you make on-time monthly payments, and reducing your total debt (as long as you’re not adding any new debt). Your credit history and credit score are key factors in determining your interest rate and the amount you may be able to borrow for future goals, so improvements there may make it easier to qualify for financing with more favorable terms.

Frequently Asked Questions About Debt Problems

How common is it to be in debt?

From credit cards to student loans, carrying some form of debt is very common. For example, Experian’s latest annual State of Credit 2020 report estimates that Americans carry an average credit card balance of $5,897, mortgage debt of $215,655, and non-mortgage debt (such as car loans or student loans) totaling $25,483. Many people use debt wisely to help finance goals that increase net worth and quality of life, such as earning a college degree, buying a home, or launching a small business.

How much debt should I have given my income?

Worried that you have too much debt? To manage your finances effectively, it’s important to do a debt and income check up regularly by figuring the amount of monthly debt obligations you have, divided by your monthly gross income. Known as the debt-to-income ratio, lenders see this percentage as an indicator of your ability to comfortably take on—and pay off—more debt successfully.

How do I fix my debt problems?

The best approach to debt management will depend on your financial situation, credit profile, debt levels, and payoff priorities. If you’re experiencing financial hardship, for example, reach out to your credit card providers, lenders, insurers, and loan servicers for assistance, as many are offering payment deferral, fee waivers, or debt relief due to the COVID-19 pandemic.

Credit card consolidation loans, debt consolidation loans, balance transfer loans, and auto-refinance loans are just some of the lending options that may be available to you. In addition, several strategies exist for paying off debt. The debt avalanche method will pay off debt the fastest, but look into the debt snowball and debt snowflake methods as well. And read some tips from LendingClub members about the many creative ways they’ve found to pay off debt quickly.

Should I pay off debt during a recession?

Recessions are full of uncertainty, and they can affect everyone’s finances differently. It may be a good idea to pay off debt during a recession, particularly high-rate credit card debt. Before you act, however, it makes sense to get a clear picture of your overall financial health and job stability. For guidance on what to consider and how to put a plan into action, learn more about deciding whether to pay off credit card debt during a recession.

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