Are You In A Debt Trap?
Credit, like whiskey is great in the appropriate quantities, but too much and too often could spell disaster. By the time you realise this, you may already be inside the infamous debt trap, unable to make the necessary payments and bleeding money in interest.
If you haven’t kept an eye on your respective expenditure, income sources and your level of debt, it is highly possible that you may landed up in a financial mess.
Here are some signs that you have fallen into the debt trap;
YOUR MINIMUM PAYMENTS ARE MORE THAN 40% OF YOUR SALARY
If you add up all of the minimum payments of your unsecured debts and it is 40% of your income or larger, you have too much debt. Exceeding 35-40% of your income risks not enough income to cover your housing, food transportation, and other necessities.
YOU’RE ONLY MAKING MINIMUM PAYMENTS
No matter what your debt levels, only making minimum payments is a problem. Even if your debt isn’t that large, you could spend decades paying it off if you only pay the minimum required monthly payment.
YOU HAVE DEBTS IN COLLECTION
If debt collectors have started hounding you over unpaid bills, then your debts have definitely grown out of control. Since your debt is in collections, this means you’ve fallen behind and failed to keep up with your monthly payments. Your credit score will start feeling the effects of your default rather quickly at this point, and you need to find a way out.
PAYING ONE DEBT WITH ANOTHER
If you’re transferring balances from one card to another to stay afloat, or refinancing your house to pay down revolving debts, you have a debt problem.