We all have our debt limits. Here’s how to know when you’ve reached yours.

4 minute read

Thanks to credit cards and loans, you can lead the life you’ve always wanted. You can drive a brand-new car, wear fashionable clothes and hit all the best bars and restaurants with your friends. You can even pay unexpected medical bills or get your vehicle repaired when you don’t have money in the bank.

But what happens when you have more debt than you can handle? And how do you know when it’s time to rein in the plastic and start paying with cash?

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1. You can afford to make only minimum payments

You can afford to make only minimum payments

If all you can afford to pay every month is your credit card minimum payment, which barely covers interest, you probably have too much debt. Even worse, paying only the minimum each month can add years to the debt payoff date.

Consumer law requires credit card companies to disclose on statements the number of months it will take the cardholder to pay off the balance and the total amount paid if making only minimum payments. Want to reduce debt more quickly? Always pay more than the minimum monthly payment due.

If you know you’re carrying an overwhelming debt load find out, How to Get Out of Debt.

2. You can no longer get credit from a reputable lender

You can no longer get credit from a reputable lender

When the smiling banker who approved your car loan now averts her eyes when you walk into the lobby, and the only loan you can get is from a payday loan store, a high amount of debt could be making you look like a credit risk.

Lenders and credit card companies consider your credit utilization rate – the percentage of debt to your available credit – to determine how likely you may be to pay your debts. If you lower your credit utilization rate by paying down debt, your credit score may improve, making you a more desirable borrower.

3. Debt is always on your mind

Do you lie awake at night juggling monthly expenses to avoid getting credit card late fees or missing payments? If you’re carrying an affordable amount of debt, it’s not likely you’ll lose sleep over it.

On the other hand, if your debt is out of control, when you finally fall asleep, money-related anxiety rears its monstrous head in dreams. For a better night’s sleep, work toward paying off debt with a strategic plan and a monthly budget.

4. Most of your paycheck goes toward debt

Most of your paycheck goes toward debt

Even if you don’t earn a high income, you should have some cash left over from your paycheck for monthly expenses, going out with friends and buying a few things for yourself. However, when you have too much debt, you can barely cover minimum payments on all your credit card and loan balances after paying your rent or mortgage.

Worse yet, you may have to charge groceries, gas and other monthly expenses on the very credit card that got you into trouble to begin with. It may be time to put the credit card away so you can pay down the balance faster.

5. You lie about how much debt you owe

You lie about how much debt you owe

So, you owe $12,000 in credit card debt but told that new guy you’re dating that you owe “a few thousand” to avoid scaring him off. Or, when a coworker discloses how much he owes on his credit card, you fess up to owing around the same amount. Except you owe twice as much.

When you’re so embarrassed about debt that you lie, that’s no way to live. You’re not the first person to rack up too much debt, so maybe it’s time to be honest with yourself, get a second job for extra income and hammer away at that debt until it’s out of your life.

6. You no longer get pre-approved credit card offers

Remember how annoying it was when you had those pre-approved credit card offers cluttering your mailbox? Well, if you’ve got too much debt, you’re probably not pestered with that kind of junk mail anymore. That’s because when debt runs high, creditors’ trust runs low.

If your credit utilization rate is high, you may look like a borrower who could have trouble paying the debt you already have, much less any future debt acquired. To knock down your credit utilization ratio, pay off enough debt to raise your percentage of available credit.

7. You regularly receive mail about debt

Even though you no longer receive pre-approved credit offers in the mail, your mailbox is now stuffed with offers for debt consolidation, credit repair, and high-interest loans. You may even be tempted to take out a huge loan to pay off all your debt.

Be careful, though. You may be getting these offers because you’re an easy target, someone with too much debt who can’t get more credit unless it’s from a high-interest lender. Before you take the predatory lender plunge, consult a nonprofit consumer credit agency for help coming up with a better debt payoff plan.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC