Spinning Out of Control: 10 Warning Signs Your Debt is Getting Too Large

Some people don’t realize when their debt has gotten out of control, but these common warning signs can alert them to the problem.
Updated March 16, 2023
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Having too much debt can negatively impact your overall financial health and make it more difficult for you to afford other things. The first step to reducing your debt is to understand them better.

Regardless of how unmanageable you find your financial circumstances, it’s not too late to turn things around and find ways to pay off debt

Here are some common signs your debt has gotten out of control and ways to prevent it from worsening.

You are paying only the minimum on credit card balances

Feng Yu/Adobe credit card minimum payment

If you can only afford to pay the minimum required on your credit card balances, you probably charged more than you should have. Carrying a balance month to month will cost you more money since you’ll pay all that extra interest.

While making timely payments — even if only the minimum — can raise your credit score, high credit utilization can cause it to drop. 

If possible, make larger payments each month. You will likely save a lot of money doing so and open the possibility for better card approvals in the future.

Consumer debt is more than half of your income

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Your debt-to-income ratio has a large impact on loan approvals. If your consumer debt is more than half your income, you may find it nearly impossible to take out a new credit card, car loan, or mortgage. According to Wells Fargo, your debt should not exceed 35% of your income.

Increasing your income can lower your debt-to-income ratio and help you pay down debt faster. You can ask for a raise, consider switching careers, or start a side hustle

Regardless of whether you’re successful in increasing income, you should make a plan to reduce your debt.

Creditors are calling you for payment

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No one wants to receive debt collection calls. When this happens, it means you’ve gotten behind on payments and the creditor has turned your account over to collections.

Once a debt is sold to a collection agency, it may go on your credit report as a collection account, and that will significantly hurt your credit score.

The inability to pay a debt is stressful, but some creditors will set up a payment plan. Others may allow you to settle the debt for less. These are just a few out-of-the-box ideas to pay off debt.

So, while unpleasant, it’s best to answer those phone calls and prevent any further damage to your financial health.

Creditors deny your application

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Too much debt can raise a red flag for lenders. They may deny your application due to collections accounts, a high debt-to-income ratio, or a low credit score. 

When you get denied a credit card or loan, it’s a sign that you need to work on lowering your debt and improving your finances.

Opening a new credit account would only add to the debt you already have, so the denial could prevent you from making things even worse.

You have maxed out credit cards

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You should never max out your credit card. Aside from high monthly payments, you’ll have a high credit utilization ratio. Experts recommend your credit utilization not exceed 30%. Keeping it below 30% is even better.

Resist swiping your credit card when it will cause you to exceed the 30% rule, unless you can pay the balance in full each month. Instead, use cash or reconsider making the purchase when you can’t afford it.

You routinely get cash advances

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Cash advances typically come with high fees, often around 5% of the requested amount. This means if you request a $200 cash advance, it could cost you $240. And that doesn’t include any additional ATM fees.

When you learn how to manage your money and have adequate savings, you stand a better chance of having extra cash when you need it. 

Rather than paying that $40 in fees, you could use your emergency fund the next time you need cash in a hurry.

You rely on credit cards for basic necessities

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When you have to use your credit card for basic necessities like groceries and utilities, it probably means you cannot cover these necessary expenses with your paycheck.

But using your credit card for these items will likely cost you more money and make it even more difficult to afford them in the future. 

Consider reassessing your budget to ensure you can cover basic needs with the funds you have.

You can’t grow your savings

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If you can’t grow your savings or have none at all, you’ll want to evaluate your financial situation. Having funds in case of an emergency can prevent you from acquiring even more debt.

Experts recommend emergency savings of at least three to six months of expenses. Once you have established healthy emergency savings, you can better pay down your debt. 

Getting your debt under control will allow you to begin saving for other things, such as retirement.

You use one credit card to pay off another

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Using a new credit card or loan to pay off another doesn’t typically reduce your total debt. It only transfers it from one account to another. And opening a new account can negatively impact your credit score.

However, you may choose to pay off high-interest debt with a lower-interest card. This could save you money since your old debt won’t continue to accumulate interest at unmanageable rates.

Don’t forget to figure out the cost to make a balance transfer — usually between 3% and 5% of the amount you’re transferring — to be sure it’s worth the money. 

Your credit score is declining

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A plummeting credit score often results from too much debt. Once your credit score falls, it can take a lot of time and effort to bring it up again. 

A good credit score is essential to your financial health. It can determine which interest rates you qualify for or whether you qualify for any credit at all. It’s wise to routinely monitor your credit report and look for opportunities to increase your score.

Bottom line

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Living under financial strain can cause extreme stress, and having too much debt can make it even worse. If you want to improve your finances and stop living paycheck to paycheck, make some changes to get your debt under control.

Missed payments and collection accounts can remain on your credit report for seven years, so the sooner you make these changes, the better.

If you run into problems making payments, reach out to creditors and ask for an extension or negotiate a payment plan. And always try only to acquire debt you know you can afford.

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Author Details

Katelyn Washington Katelyn Washington is a writer with a passion for finance and business. She put herself through business school as a single mother of three and has had pieces commissioned by national magazines. When she’s not writing, she enjoys spending time with her family and editing manuscripts for indie authors.