Debt Warning Signs You Shouldn’t Ignore

by Gary Foreman

Are you heading for debt trouble? You might be without even realizing it. Here are the debt warning signs you shouldn’t ignore.

Millions of people find themselves in financial trouble each year. Until the last moment, many didn’t realize that there was danger ahead. However, for most of us, there are early warning signs that can help to avoid financial disaster.

Read on for the debt warning signs you shouldn’t ignore.

The Debt Warning Signs You Shouldn’t Ignore

Let’s see if we can’t all learn what those warning signs are.

The Balance Owed on All Your Cards Is Increasing

Compare the total balance on all cards from a year ago to today’s balance. It should be going down, not up. If it has increased by more than 10%, you’re losing ground quickly.

Increasing activity is another clue. Total all your credit card charges this month to those you made a year ago. If you’re using your cards to make many more purchases or the total value of the purchases is up significantly, you’ll want to consider whether your card usage is out of control. Take the two-page test. Unless you travel on business, a two-page credit card statement is a sign of trouble.

More Than 5% of Your Take-Home Income Is Going To Pay Off Debts

A quick measurement is to total all the monthly minimums on credit cards and loans, not counting a car loan or mortgage. That total really should be less than 5% of your take-home pay. If it’s between 5% and 15%, you’re starting to get into trouble. A reading over 15% is a sign that you’re running out of time to fix the problem.

What about emergencies? A large number of bankruptcies are caused by unusual events. How can you predict those? You can’t predict when they’ll happen, but you can be sure that some ‘surprises’ will happen. For instance, you might not have an auto repair bill or an accident this year. But over the next five years, you would almost expect a large bill of some type on your car.

I can hear some of you saying that it’s impossible to save money for an emergency fund. But, not saving for the “unexpected” doesn’t mean it won’t happen. It just means you won’t have the money to pay for it when it does happen. If you’re already struggling with your bills, that could be enough to push you over the edge.

You Could Not Pay Your Bills if You Lost Your Job for an Extended Period

Could you keep up with your bills? In today’s economy, there are no job guarantees. Even in a good economy, it can take weeks to months to find another job. If being jobless for a short period would mean falling behind in your payments, it’s time to consider pruning your debts back.

Will You Pay Attention to the Debt Warning Signs?

No one intends to get deep in debt, but it happens to many of us. By looking at events from a different perspective, we can gain an idea of what the future holds. And it’s a prudent person who sees danger and avoids it. The fool is the one who ignores warning signs and suffers for it later.

• Do You Have a Relationship With Debt?
• What Does My Debt Cost Me?
• Reduce Your Debt With a Sinking Fund
• 8 Reasons You Don’t Have an Emergency Fund
• Be Debt-Free This Year

Reviewed September 2023

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.