13 Warning Signs That You Have a Debt Problem

Debt is a powerful tool that can help or hurt your finances depending on how you use it. Savvy consumers know how to leverage low-interest debt to purchase assets that are likely to increase in value over time, such as a home or business. Education debt can also pay off over time if it allows you to earn more.

But many people abuse debt and allow their finances to get out-of-control. In this post, I’ll cover 13 warning signs that you may have a debt problem. You’ll learn red flags to watch out for that could prevent you from building wealth and solutions to turn around your financial life. 

13 Warning Signs That You Have a Debt Problem

  1. You don’t know what you owe.
  2. Your debt-to-income ratio is too high.
  3. Your interest-to-income ratio is too high.
  4. You can only make minimum payments on cards.
  5. Your credit cards are maxed out.
  6. You can’t pay bills on time.
  7. You’ve borrowed to pay your bills.
  8. You overdraw your bank account.
  9. You don’t have savings.
  10. You’ve been turned down for new credit.
  11. Your finances cause you to lose sleep.
  12. You lie about your finances.
  13. You’re getting calls from debt collectors.

Use the following information about each warning sign to curtail a debt problem before it’s too late.

1. You don't know what you owe.

If you don’t know how many debts you have or their approximate balances, you need a reality check! If you’re avoiding opening your bills or looking at credit card statements because you don’t want to see the balances, then you already know you have a debt problem, and it’s time to do something about it.

Take the time to create a spreadsheet listing each account name, number, interest rate, and the amount owed. In general, it’s best to tackle debts with the highest interest rates first, such as payday loans and credit cards, since that gives you the most potential savings.

Hiding from a financial problem doesn’t make it go away. Knowing where you stand with debt is the first step to getting it under control and improving your entire financial life.

2. Your debt-to-income ratio is too high.

Your debt-to-income (DTI) ratio is a key formula expressed as a percentage that lenders use to evaluate you, and you can use it, too. To figure it out, add up your total monthly debt payments—including credit cards, loans, and your rent or mortgage payment—and divide that amount by your gross (pre-tax) monthly income.

For example, if you earn $5,000 and your debt totals $2,500 per month, your DTI is 50% ($2,500 / $5,000 = 0.5). Most lenders consider a DTI above 40% too high, especially when you’re applying for a mortgage. So a 50% DTI means that you have more debt than you can handle for your income.

But even if you don’t plan to buy a home or get a large loan anytime soon, calculating your DTI is a good way to monitor your financial health. Watch it over time to make sure that it decreases and never goes up.

The solution to a high DTI is to pay off debt by cutting expenses, increasing your income, or doing both. Additionally, paying down your outstanding debt balances boosts your credit. That may allow you to qualify for debt optimization tools, such as a balance transfer credit card or a low-interest personal loan.

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About Laura Adams

Laura Adams is a personal finance expert and award-winning author of multiple books, including Money Girl's Smart Moves to Grow Rich. Her most recent title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release. Laura's been the host of Money Girl, the top-rated weekly podcast, since 2008.

Laura is frequently quoted in the national media and has been featured on NBC, CBS, ABC, FOX, Al Jazeera, Bloomberg, NPR, MSN, USA Today, The Wall Street Journal, The New York Times, US News and World Report, Consumer Reports, Forbes, Money Magazine, Kiplinger's Huffington Post, and many other radio, print, and online outlets. Since 2013, she's completed over 1,000 media interviews.

Millions of loyal listeners and readers benefit from her practical advice. Her mission is to help over 100 million students and consumers live richer lives through her podcasting, speaking, spokesperson, teaching, and advocacy work.

Laura received an MBA from the University of Florida. She lives in Austin, Texas with her husband and their yellow Lab.

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