Home Finance & The City Money How to Spot when Debt is Becoming an Issue

How to Spot when Debt is Becoming an Issue

Debt is something you don’t ever plan on incurring or falling down that black hole, and for many people, it’s not one particular thing that prompts a spiraling of debt – it is a build-up of expenses or purchases made over time. Debt can almost sneak up on you; with the person not realising it is a problem until the debt load is massive and a major point of stress and anxiety.

Obviously, the best plan is to recognise debt is becoming an issue before you get in too deep, but what are the signs you should be looking for? Are there classic red flags that can signal you’re heading down the wrong path and that a course correction is in order? Can you in fact prevent debt from getting too big and unmanageable if you just react sooner?

With all that in mind, we’ve gone ahead and collected a list of signs that can help you to spot when debt is becoming an issue. Not only that but what you can do at that point in order to get your finances back in order and under control.

You Feel Stressed and Worried When You Think About Money

While this can certainly act as a warning sign, it’s also important to realise that a lot of people are stressed and worried about money on a regular basis, even if they aren’t in debt. It’s actually a very common worry that people have, especially in 2020 when so many have been forced to work from home, reduce hours, or may not even be able to work at all.

In other words, don’t use this as the one and only sign that your debt may be an issue; rather, this can be an early warning flag and something to look deeper into. Why are you worried? What is causing you the most stress about money? Dig deeper into your feelings and try to find the source.

Your Bills Total More than Your Income

A real simple and tell-tale sign that your debt may be an issue is if your bills total more than your income each month. Whether this is temporary or long-term, it is clearly going to lead to a building pile of debt.

While it may just be a couple hundred you are short each month, over a few months or even a year that starts to really add up. You then have to ask yourself how you can get out of that debt if you aren’t even making enough to pay your bills.

Your Debt Load Equals More than 20% of Your Net Income

Along the same lines as not making enough, even if you are keeping up with your bills, maybe you are just able to pay the monthly minimum. Sure this means you won’t miss a payment and won’t get in trouble that way, but it also means you’re not touching the principal amount owing. Basically, you want to aim to keep your debt at less than 20% of your income. That makes for a very simple math equation to follow.

You’re Are Borrowing from One Source to Pay Off Another

Another red flag to watch for is if you are borrowing from one source to pay off another. For example, let’s say you are borrowing from a line of credit just to pay your monthly minimum on your credit card. Doing this is leading to more debt and it’s not helping you to chip away at the principal.

You Have No Way of Paying for Emergency Expenses

It would be great to believe you’ll never be faced with an emergency or unexpected expense, but that’s just not the reality. If you have no way of paying for that expense, and it would likely lead to financial ruin, then this acts as another big red flag.

You Are Paying a Fortune in Interest Charges

Here’s something that goes hand-in-hand with debt, and that’s spending a ton of money on interest charges. Once you start adding them up, it’s really overwhelming to see just how much of your money goes to this expense.

What Can You Do About It – Make More Money

Of course, there’s a really simple answer for having too much debt and that’s to make more money. Well, this is often easier said than done. If it were that easy to just “make more money”, no-one would likely be in debt for long.

If you do want to take this route, however, you can start by taking extra shifts at work, speaking to your boss about a raise, applying for a promotion if you are qualified (making more in the new position), or searching for a new job, whether that be a part-time job to act as a supplemental income or a new higher-paying full-time job.

What Can You Do About It – Cut Down on Expenses

This is a solution that can really benefit anyone, whether you are in over your head with debt or not, it’s always a good idea to take a look at your budget and see where you can make some cuts. Typically, the best places to do that are entertainment, clothing, dining out, groceries, switching cell phone providers, streaming services, and other miscellaneous areas.

Now if you need to really slash expenses, that’s when you can start looking at your life as a whole and downsize. That could include moving to a more affordable town/city, downsizing your accommodations, selling your car (especially for multi-vehicle households), and so forth. It really comes down to how much money you need to save.

What Can You Do About It – Look into a Short-Term Pay Day Loan

Here’s an option that can work really well if you’re just looking to bridge the gap between paydays when an unexpected expense comes up. A pay day loan is meant to be paid back within a few weeks or months, not years, so this is truly a short-term solution for those pressing situations.

So, where do you access one of these loans? Rather than waste your time doing all the research, you can use a regulated credit broker such as New Horizons. New Horizons has access to all the top lenders and will work to get you the best quote possible. Even if you have bad credit, you can still qualify, in fact, 90% of applicants are accepted. Other pros include the fact there will be no credit footprint of your search, you get an instant decision, there are no fees attached, and you can get the money in as little as 15 minutes after being approved.

Keep in mind that these styles of loans are also smaller in value, as they are meant for those borrowing £50 to £5,000.

There Are Ways Out of Debt Before it Gets Too Late

Debt is something that can put a real weight on your life, feeling as though you’re losing control of your finances and there is no way out. This is why it’s so important to recognise that debt is becoming an issue before that issue spirals out of control. These red flags, combined with the tips above, can help you to get a much better handle on things.