There are many factors that come into play when discussing a person’s debt load. Every situation is different. Still, there are ways to determine whether your credit card debt might be too high.
A simple and quick way to get a sense of whether you have too much debt overall is to calculate your debt-to-income ratio. A debt ratio is simply the percentage of income that goes toward paying your monthly debts. To calculate it, simply add up your ongoing monthly debt payments – typically credit card, auto loans, personal loans and student loans. Then, divide the sum by your monthly income after taxes and other deductions – your take-home pay. A quotient of 0.10 or lower means you’re spending 10 percent or less of your monthly take-home on debts. A result higher than 0.10 is a warning sign. Also, If your debt load is negatively impacting your credit score – you’ve been turned down for new lines of credit – overall, you probably have too much debt.
Credit card warning signs
First, it’s important look at interest rates. Chances are you’re paying a much higher interest rate for credit card debt than you are for other debts. If your credit cards are maxed-out, and all you can handle is the minimum monthly payment, you’re only paying a very small portion of the principal on your debt. It will take years to pay off even a small debt with this approach, and you’ll end up paying more in interest than the original expenditure. If creditors are hounding you because you can’t make your payments, and you’re not expecting a large infusion of incremental cash any time soon, you can be certain you have too much credit card debt.
Negotiating with the bank
Banks are smart enough to know that someone with high credit card debt can’t just pull the money out of a hat. If you find yourself unable to make your monthly payments, don’t assume the situation is hopeless. Most banks would rather have you contact them, explain your situation and request assistance than have you go off-the-grid. It can be as simple as asking for a reduced interest rate, or requesting a temporary payment reduction. If your dilemma is longer term in nature, and outside factors are in play – like unexpected medical bills – you may want to ask the bank if it will accept a lump sum settlement payment for something less than what you owe.
Getting good help
If those attempts fail, it’s time to enlist the services of a debt management and resolution company. like Rescue One Financial that has professionals on hand who can develop a plan to get your credit card debt under control. They might be able to help you negotiate reduced balances or debt settlements on your credit cards. Similarly, it can advise you on the most effective way to consolidate your debts. It may be possible to get a new line-of-credit at a substantially lower interest rate than your paying on your credit cards, in which case you could pay off your credit cards, consolidate your debts at a lower interest rate, and reduce your monthly payments.