4 Signs Your Credit Card Debt Is Setting You Up for Financial Ruin

You may be interested

Kiwis / iStock.com

Incurring credit card debt can make it easier to buy various products and services. You can also earn points or cash back for every purchase while boosting your credit score. However, if you don’t attend to your credit card debt for long enough, it can have significant financial consequences.

You are viewing: 4 Signs Your Credit Card Debt Is Setting You Up for Financial Ruin

Be Aware: 5 Ways Credit Cards Make You Spend More

Find Out: Why Skipping a Financial Advisor Could Be Your Biggest Money Mistake

A small amount of credit card debt can be manageable. However, these are some of the red flags that can indicate that your credit card debt is setting you back on your long-term financial goals.

Also see five credit card rules you must follow to stay out of debt.

Ashley Morgan of Ashley F. Morgan Law is a debt and bankruptcy attorney who sees the effects of credit card debt every day. Her office helps clients manage millions of dollars of credit card debt each year. She warned about the consequences of making only the minimum payment while spending more than the minimum payment each month.

“If you are using any cash on hand just to make minimum payments on the card, but then turn around and use that card for the same amount (or more) that was paid on the card, then the debt is not being managed,” she explained. “It is a cycle to pay down a card just to use it again because you cannot afford to pay down the debt. You might keep your account current or open with this cycle, but it is a sign you are overwhelmed financially.”

See more : World Bank Approves $700 Million Boost for Ethiopia’s Financial Sector

Learn More: 6 Reasons Credit Card Debt Is Growing – and What To Do About It

Even if you spend less than the monthly minimum payment, Morgan cautioned that not making more than the minimum payment is another sign of problematic credit card debt.

“Having one or two tight months happens. But if you are in a pattern of only paying minimums on all your credit cards or if you cannot afford to pay the minimums on all your credit cards for multiple months, then your debt is not manageable,” she said. “If you only pay the minimums on your credit cards, it typically will take between eight and 20 years to pay off if the card is close to the full balance.”

Another key sign that credit card debt is setting you up for financial ruin is if it’s caused an inability to work on other financial goals. Sean Fox, president of debt resolution at Achieve, a digital personal finance company, mentioned some examples of how high credit card debt can impact other goals.

“[It causes a] loss of the ability to do other things, such as save up for larger purchases you want to make, for trips you want to take, to send a child to college, to retire or for other goals. Carrying credit card debt at today’s rates (averaging more than 20%) means that you have 20% less money available to put toward what’s really important to you. And you end up paying 20% more than the purchase price of the items you bought,” he explained.

Fox also explained how it can be a red flag if you are using multiple credit cards to cover necessities, like food, housing and utilities, or other debts, like an auto loan.

“If your credit card debt is high because you are otherwise unable to pay for day-to-day expenses, you run the risk of getting into a vicious circle of debt that’s hard to escape,” he said.

See more : Undiscovered Gems with Promising Potential for January 2025

It’s possible to break the cycle of credit card debt and make progress toward reducing your balance. Both experts recommended some strategies that can help.

“The absolute best way to avoid falling into credit card debt is to work with a budget that is based on your own goals,” Fox explained. “When you take time to determine what’s really important to you — what you want to do and have in life — and then build a budget around those things, you’ll find it infinitely easier to avoid turning to the credit card.”

Fox also recommended an easy change that can reduce your credit card debt. “Use cash for any purchases you can; studies have shown that you’ll spend 15%-20% versus using a credit card,” he said.

Morgan also advocated using cash for purchases to get out of credit card debt. She also issued an ultimatum for credit cards that you can’t pay off.

“If you cannot pay your card in full in specific months, you want to stop using the card whenever possible and pay that account off in full as quickly as possible,” she said. “Too often, when you start carrying a balance and [continue to] use the card, it is easy to not realize that the balance is creeping up each month. By stopping any card use, it prevents an additional amount from being added to the balance.”

More From GOBankingRates

This article originally appeared on GOBankingRates.com: 4 Signs Your Credit Card Debt Is Setting You Up for Financial Ruin

Source link https://finance.yahoo.com/news/4-signs-credit-card-debt-190008854.html

Source: https://summacumlaude.site
Category: News