When I moved to a new city to start graduate school, I opened an 18 month interest-free credit card. At the time, I thought the credit card would be a great way to pay for my books and new furniture for my apartment. After all, I’d have a whole 18 months to save enough money to pay the credit card’s balance. But, after 15 months, I realized that I had over $10,000 in credit card debt and only $100 in my own savings account. There was no way I was going to be able to pay off my credit card in three months, and I would then be stuck with a huge balance and high interest rates.
It’s not always easy to ask for help with finances, and it took me a long time to finally admit to myself and my parents that I had dug myself into a cycle of debt. I had been in denial about my poor decision making and financial mistakes, because I wanted to prove to myself that I could successfully take control of my finances in a new city as a mature graduate student.
If I had sought help earlier, I could have saved hundreds of dollars. I learned the hard way that the longer you wait before asking for help, the longer you suffer financially and emotionally. So, if you’re feeling anxious or nervous about asking for help with your credit card debt balance, here are five signs that might mean you’re in over your head.
1. Making Only the Minimum Payments
After 18 months, I found myself only able to pay the minimum on all my credit cards including the high-interest ones. Without at least $100 toward each credit card balance every month, it’s hard to see the light at the end of the debt tunnel. I could hardly see any progress after paying months and months of bills, and it was incredibly disheartening. If you’re only able to pay the minimum on your credit cards, it’s time to consider other options to get out of debt.
2. Interest Rates are High
I quickly learned the importance of interest rates when they skyrocketed to 24.5% after 18 months! My balance was already high, so the high interest rate was crippling my chances of paying down my debt. If your interest rate is 18% or higher, and you’re just making the minimum payments, you really need to start looking for other ways to progress. A large credit card balance plus high interest rates is a recipe for long-term and never ending credit card debt.
3. Maxed Out or Near Your Credit Limits
If your credit card limit is $10,000, it might be tempting to charge up to $10,000 on your credit card. But don’t be fooled; If you hit or go over your credit card limit, you’ll have difficulty paying back your debt and also be hurting your overall credit score. Credit card utilization rate (how much of your available balance you charge per month) is calculated as a part of your credit score since it shows lenders just how risky you are when it comes to spending on credit. The recommended rate is to have below 30% of your credit card limit on each credit card. If you’re at or near the max of all your credit cards, it’s time to start thinking of new ways to manage your finances.
4. Your Balances Are Not Going Down
After months and months of trying to pay off my credit card bills, I still had almost the same amount of money (or even more!) on each of the cards. This was because of a variety of factors: high interest rates, large balances, and continued monthly spending. There’s a happy balance among all these things, and if your balances are not going down every month as you make payments, then you just haven’t found that balance yet.
5. You Don’t Have a Monthly Spending Plan
The biggest factor in my road to debt was my inability to make a realistic monthly spending plan. I had an extremely limited budget since I was a graduate student, but at the end of the day, I would just spend beyond my means. This ended up in 18 months of overspending, and many more months of adding to that debt with continued monthly spending on credit. If you don’t have a monthly spending plan, it’s time to make one. There are ways to get help for your current credit card debt balances, but when it comes to monthly spending, you have to take responsibility for every cent you charge on your credit card starting today.
Do you know how long it will take to pay off your credit card debt balance? Use our Credit Card Payoff Calculator to find out (no personal information required).