Almost everyone has some type of debt. Paying what you owe in a timely and responsible manner helps build a solid financial and credit history which in turn allows you to receive a better interest rate and more favorable loan terms on big ticket items, such as a home or automobile.

Unfortunately, going from easily manageable debt to overwhelming debt can happen relatively quickly. And the consequences can be extremely serious. Carrying too much debt is a very common problem for American consumers. In the past, it was fairly easy to obtain new credit cards and the mortgage industry was much more lenient in approving home loans. Today, the situation is somewhat different. Banks have severely tightened their lending practices and applications for new credit are not automatically approved.

But that still leaves a lot of consumers reeling from the credit crisis of the past few years. Many people have lost their homes or have seen their equity dwindle down to nothing- or worse, they may be underwater with their mortgages. This means they owe more than their homes are actually worth in the current real estate market. Plus, there are millions of consumers who have numerous credit cards (all at their credit limits) and are literally drowning in debt.

It is important that you stay alert to signs of too much debt in your own financial picture. Sometimes it can be difficult to realize when you are in a serious monetary situation. But generally there are warning signs that you may be headed for a financial crash. Read over the following statements and if any of them apply to you, begin taking action now to remedy the situation before it gets out of hand.

The Serious Red Flags

  • A large percentage of your income (more than 30%) goes to pay off debts (mortgage not included).
  • You have no idea how much money you actually owe.
  • You pay the minimum amount each month on revolving charge accounts.
  • Your credit cards (including store accounts) are near or at their credit limits.
  • You frequently bounce checks or overdraw your bank accounts.
  • You have no savings and no emergency fund accounts.
  • You take cash advances from your credit cards to pay other bills.
  • You continue to use credit cards while trying to pay them off.
  • You’ve been denied credit.
  • You use credit cards to buy purchases you would generally pay for with cash (groceries, gasoline, etc).
  • Creditors are contacting you.
  • You constantly worry about your financial situation. This can include having trouble sleeping, loss of appetite, and other physical signs of stress.

Credit is not entirely a bad thing. It is a convenience that carries with it a big responsibility. By smartly managing your credit you can improve your financial position and continue to build a strong credit history. Sometimes even when you know there is a problem, the temptation is to just ignore it and hope for the best. Unfortunately, this scenario doesn’t work very well with financial problems.

Taking control of your finances can be a long and painful process but not making the needed changes will only make matters worse. There’s a saying that goes “when you’re in a hole, stop digging”. This especially holds true when it comes to money woes. The sooner you realize that you have a serious financial problem, the sooner you can start to make positive changes.