When things are standard, we tend to remark about them less often. This is good logic for conversing with a group of people, not so much for racking up debt.
And nothing is more American than debt these days. Around 80 percent of adults have some form of it through mortgages, student loans, vehicle payments, medical bills, and credit cards.
But if four out of five U.S. adults have debt, is it a problem or just an inevitability of living in a consumerist nation?
Like anything, varying levels of severity exist. Here are three indications debt has reached critical status.
Your Minimum Payments Aren’t Small
Minimum payments are the reason many people end up in debt. Typically between two and five percent of the overall balance, it’s always more inviting to pay the minimum. So, people do, and they incur high interest rates as a result.
Paying the minimum is certainly better than paying nothing, but doing so can quickly become a habit. This is when trouble looms. Because eventually, only paying the minimum will allow a balance to fester and grow. When this behavior is spread across several balances, a significant portion of a household’s income is eliminated just to keep pace with debt. As a general rule of thumb, you have a serious issue on your hands if the combined minimum payment across all your debts is 20 percent.
People Are Contacting You About Your Debt (And It’s Yours)
Receiving written mail, phone calls, perhaps a steady mix of both? If you’re only receiving written communications, then you’re likely still in the initial phases of delinquency. Generally, a creditor will send a letter if a payment is 30 days past due notifying the borrower of the missed payment.
At 60 days past due, more communications will be sent, but they won’t be as cordial. This is also the last stage before lapsed payments start having a severe and lengthy impact on credit reports. Take this time to get active on your debt. If some kind of hardship is preventing you from staying active with payments, explain your circumstances to your creditor. They’re less likely to be empathetic after you’ve fallen behind on payments, but you may as well try.
Are you past occasional letters and now receiving regular mail and phone calls about your debt? You’re at least 90 days late, but more likely four-to-five months behind, as that’s typically the point when creditors charge off debts to collectors.
If you’re fielding calls from collectors that sound a little too harsh, understand how you’re protected by the Fair Debt Collection Practices Act. According to Freedom Debt Relief reviews, you stand the best chance of negotiating your debt once it’s at least six months old.
You’re Borrowing Money to Pay Off Debts
Opening new lines of credit to make progress on existing debt can be effective in the right circumstances. For instance, a balance transfer with a one-year zero-interest introductory period can save a debtor money on credit card interest and help them pay back the loan faster. At the same time, the combination of no repayment plan and a balance transfer fee can quickly turn this strategy into a hollow act of moving money around.
An even riskier strategy is leveraging the equity you’ve built in your home. The insurgence of cash can provide a jolt to the principal balance and the spark needed to stay consistent with payments. However, if the money is used to pay for life needs while income goes to existing minimum payments, a debtor could lose their home.
Is your payment plan effective? Does it make enough progress to where taking on more debt makes financial sense? If you’re moving money around, you’re only wasting time and adding to your time in debt.
When nearly everyone we know is in some kind of debt, it’s easy to think of ours as less of a problem than it is. Your debt isn’t relative to other people’s debt; it’s relative to you. So, while many financial and behavioral signs may suggest you have a debt problem, these three signs spell it out.