Everyone has a little credit card debt, right? That’s what many people tell themselves to justify carrying heavy loan amounts, but the fact is that undisciplined spending and poor credit management are serious problems that must be addressed. The Texas Society of CPAs offers five signs that show your debt and spending are out of control, and provides advice on what to do if they are.
You Pay For Everything With Credit Cards
Once upon a time you used cash when buying groceries, paying for gas or picking up a quick lunch, but now you whip out the credit card for virtually all your regular daily purchases. If you're doing this and paying off your credit card balance at the end of each month, then you're helping build your credit score and probably earning some credit card rewards in the process. If you're not paying off your balance at the end of each month, you are probably either in financial trouble or on the verge of it.
CPAs advise that while plastic is easy to use, the credit card balances you are building will come back to haunt you. If you are already carrying a balance on your card, your new purchases will likely just hike up the amount of interest you’ll be charged each month.
Keep that in mind when you’re making a purchase, and it may help change your habits. And if you’re relying on credit because you just don’t have the cash, it’s time to take a realistic look at your budget and consider necessary changes.
You’re Adding New Accounts
What happens if you can’t pay your credit card or other bills? Some people solve this problem by opening up new accounts and using balance transfers or cash advances to make required payments on their existing debt.
They might also add a new account if their old cards have reached their credit limits. This financial sleight-of-hand solves the immediate problem, but it also digs you deeper into debt. Interest rates on these types of transactions are some of the worst available. If you’re in this position, it’s a sure sign that you need to get a handle on your debt and alter your spending habits.
Here’s a sad fact: Even if you don’t keep spending, your outstanding credit card balances may keep growing if you make only the minimum payment every month. That’s because the interest rate you owe on your outstanding debt is lumped in with your balance. You then have to pay interest not only on your past purchases but also on that added interest.
You’re Missing Payments
Remember that it’s always a good idea to contact your creditors when you can’t make a payment and ask about temporary reduced payment plans, payment moratoriums or other options. This step could help you prevent a bad credit rating or cancelled account.
You Avoid Your Bills
You have a stack of unpaid bills that just keeps growing. You screen calls so you don’t have to talk to angry bill collectors. If you’re in this situation, you won’t be able to sidestep the problem forever.
CPAs recommend instead that you get a realistic sense of where you stand financially and that you begin contacting creditors, cutting spending or taking other necessary steps to get your financial life back on track.
(Updated and reviewed 2016)
Copyright 2010 American Institute of Certified Public Accountants.