10 Signs Your Credit Card Debt is Out of Control

Being buried in a mountain of debt can lead to anxiety and depression, increasing headaches, affecting sleeping patterns, and impacting a person’s ability to focus. This type of physical stress on the body can affect a person’s ability to work, which further enhances financial struggles.

According to the latest consumer debt data from the Federal Reserve Bank of New York, Americans have $841 billion in outstanding credit card balances. Read on if you are one of the millions of Americans that feel their credit card debt is out of control.

10 Signs Your Debt is Out of Control

Here are some red flags to look out for that let you know if your credit card debt is out of control.

1. You’re Making Late Payments

A missed or late payment can seriously affect your credit score. The longer your payment is past due, the more your credit score will take a hit. And the fees from those late payments will add up and only make your situation worse.

2. You’re Only Paying the Minimums Each Month

If you’re just making minimum payments on multiple cards each month — and continuing to charge purchases to those cards — your debt is only going to build. The interest that you accrue each month is probably higher than the amount you’re paying your credit card company.

3. Your Credit Cards are Maxed Out

This means you’ve reached or exceeded your credit limit, usually multiple times. Your credit score will take a hit, and the credit card becomes unusable until you pay the balance down. Your minimum payments can become unmanageable. The balance combined with the credit card interest (and any fees) can make paying your credit card down much harder.

4. You’re Juggling Payments on Several Cards with High Credit Card Balances

Chances are, you don’t just have one credit card. According to the 2019 Experian Consumer Credit Review, the average American has four credit cards. So, if you are taking a cash advance from one to pay another or moving money from card to card each month to make your minimum payments, this is a big sign that your credit card debt is out of control.  

5. Your Available Credit is Low

Available credit refers to how much a borrower has left to spend on that particular credit card. It is the difference between your credit card balance and your credit limit. It will change throughout your billing cycle as you use the card.

For example, if your credit limit is $2,000 and you use your credit card to buy a $500 gaming system and pay for your $60 LinkedIn subscription, your available credit will be $1,440.

If your available credit is low even after you’ve just paid your monthly bill, it’s a sign that the interest that is accruing on your accounts each month is higher than the payments you’re making, and causing you to get deeper in debt without even spending any extra money.

6. You’re Asking for Higher Credit Limits

If you are regularly calling credit card issuers to ask them to raise your credit limits, you might be using your credit line irresponsibly. Asking for a higher credit limit could lead you to spend more and worsen your debt struggles.

7. Your Credit Utilization is High

There isn’t a magic number, but it’s generally good to keep your credit utilization below 30%. Your total credit utilization ratio is the sum of all your balances divided by the sum of your cards’ credit limits. 

So, for example, if you have two credit cards, each with a $1,000 limit, and owe $500 on one and $250 on the other, your credit utilization ratio is $750 divided by $2,000, or 37.5%.

8. You’re Routinely Using Cash Advances to Cover Daily Expenses

A cash advance lets you borrow a certain amount of money against your credit card’s line of credit. People who take out cash advances are more likely to default on their credit card debt than people who do not. That’s part of why interest rates on cash advances are higher. They also can include fees. It could also make you more likely to fall behind on your credit card payments.

9. You Need Payday Loans to Make It Through to Payday

Payday loans — like a credit card cash advance — have higher interest rates because of the greater risk they will be paid on time. Payday lenders target financially strapped customers who don’t qualify for credit cards or have very low credit limits, primarily due to past financial problems.

10. You Feel Hopeless

It can be discouraging to keep paying each month and not see any progress. But there are steps you can take to set a debt relief strategy and stick to it.

Read more: How to Pay Off $20,000 in Credit Card Debt

Next Steps: 14 Ways to Regain Control of Your Financial Situation

If your credit card debt is out of control, you feel becoming debt-free might seem impossible. If you owe $50,000 in debt at an average interest rate of 18%, you’d need to pay $1,469 per month over 48 months. You’d pay $20,500.00 in interest alone.

1. Assess Your Debt

Calculate your debt-to-income ratio. To calculate your debt-to-income ratio, add up your monthly debts – rent or mortgage payments, student loans, personal loans, auto loans, credit card payments, child support, alimony, etc. Then divide the sum by your monthly payments income.

2. Track Your Income and Spending

Budgeting apps like Mint or YNAB are a great way to track your spending and learn where it goes. These apps keep track of your monthly payments and expenditures and compare them to your income. Add up all your bills, including student loans, car loans, credit card debt, monthly bills, and groceries. These apps can also help you prioritize which to pay off first by showing your account balances and spending patterns.

3. Find a Side Hustle

If your credit card debt is out of control, a side hustle is a way to earn extra income in addition to a full-time job. It might be easier to pay bills, contribute to savings, or assist with other expenses with the extra money. The additional income could also help with extra income to tackle your debt. Finding a roommate to help you share costs is another great way to save on extra expenses.

4. Downsize

A smaller space could mean significant savings: You will have a lower mortgage payment, but you’ll have lower maintenance costs, lower property taxes, and insurance, and you’ll need fewer things to fill up your home. While moving to a smaller home has its financial benefits, it is a significant lifestyle change. Canceling subscriptions can help save you each month. According to Truebill, approximately 25% of users realize that they have been paying for subscriptions that they didn’t want.

5. Negotiate with Your Credit Card Companies and Other Creditors

Do your homework before you call your lenders. Credit card issuers want to get paid. Some will work with you on repayment plans and reduce the amount you owe to ensure they get something.

6. Automate Payments

Automating payments will save you money on late fees and help you take control of your finances.

It’s convenient, saves time, can help you build credit, improve your score, and helps keep track of payments going out to various companies due at different times of the month, even if you pay the minimum amount. 

7. Make Extra Payments

Making extra payments will save you significant amounts in interest. The extra money you are paying will be applied to the principal amount of your loan. That means you are paying down the actual amount of the loan – the money you borrowed – faster.

8. Choose a Debt Relief Strategy

If your credit card debt is out of control, there are several strategies to choose from.

Debt Snowball Method

The “snowball method” means paying off the smallest of your loans as quickly as possible. Once that debt is paid, you take the money you put toward that payment and roll it onto the next-smallest debt owed. Ideally, this process would continue until all accounts are paid off. Paying off debts with the smallest balances can be a motivator. It is the speedier cousin to the debt avalanche method.

Debt Avalanche Method

In the debt avalanche method, you pay your debts from the highest interest rate to the lowest interest rate, regardless of balance. 

The avalanche method doesn’t give you instant gratification as the debt snowball method does, as it typically takes longer to eliminate your first debt using the avalanche. The first debt for an avalanche generally is higher due to the interest rate building it up more.

However, the avalanche method will save you time and money in the long run, as your debts will be paid off faster and accrue less interest than the snowball method.

To learn more about the differences between debt snowball and debt avalanche, check out this video:

9. Apply for a Balance Transfer Card

If your credit is good enough, this is a great option. Apply for a new credit card that offers an introductory APR of 0%. Then transfer your high-interest debts to the new card. You’ll pay a balance transfer fee, but you can save quite a bit of interest if you can pay off your new card within the promotional period — usually 12 to 18 months. Note that you won’t get cashback on balance transfers.

10. Debt Consolidation Loan or Personal Loan

The lower interest rate and one monthly payment will help ease your budget crunch and give you extra money to cover your daily expenses. New credit can be risky, though. Make sure you have the discipline to stop using your credit cards once you’ve paid them all off with the new loan. And as soon as you have the cash in your bank, pay all the creditors off immediately. You don’t want to put yourself in a worse situation than when you first started.

11. Refinance Your Private Student Loans

Refinancing your student loan won’t help with specifically credit card debt but could reduce your student loan monthly payments, so you have more money each month to put toward other bills.

12. Think About Bankruptcy

Consider filing for Chapter 7, which erases most unsecured debts; these are debts without collateral, like medical bills, credit card debt, and personal loans. But use this as a last resort because it will have a severe negative impact on your credit and last for up to 10 years.

13. Seek Professional Debt Relief

If you don’t have the time or discipline to tackle your debts, consider some professional financial help. A debt settlement company or credit counselor could solve your problems.

Debt Settlement

Debt settlement is an agreement between a creditor and a consumer in which the total debt balance owed is reduced, fees are waived, and the reduced debt amount is paid in a lump sum instead of revolving monthly.

Consumers facing seriously delinquent credit card debt, usually, 90 days past due, are eligible for debt settlement consideration. Unpaid medical bills, too, are debt-settlement eligible. For the most part, creditors forgive around half of the balance owed.

Debt Management Plan

A debt management plan is a repayment plan set up and managed by a credit counseling agency. Many credit counseling agencies are nonprofit organizations that offer education and assistance to help people better manage their finances, intending to get them back on the road to financial stability.

14. Review Your Credit Report and Learn Your Credit Score

Know what’s in your credit report. People with bad credit pay the highest interest rates. You will have better loan options by regularly checking your credit reports, fixing any errors you might find, and working to boost your credit score. Some services now will even give you a score boost for making your monthly subscription payments.

Credit Score Ranges

If you are on the cusp of a better credit rating, it will be to your benefit to bring that score up to 1 point before applying for that loan to save on the interest rate.

  • Poor credit: 300–600
  • Fair credit: 601–660
  • Good credit: 661–780
  • Excellent credit: 781–850

The Bottom Line

Credit card debt can be overwhelming. There are viable solutions to get it under control, so you don’t have to have sleepless, anxiety-driven days and nights. To break the debt trap, be patient. Take action and stick to your plan. Remember, it took years to build up those outstanding balances. Recovery will be a similarly slow process.

FAQs

Where Can I Get a Free Credit Report?

You can check your credit scores for free at AnnualCreditReport.com, or by phone at 1-877-322-8228. For TTY service, call 711 and ask the relay operator for 1-800-821-7232.

How Much Credit Card Debt Does the Average American Have?

According to a 2020 Experian study, the average American carries $92,727 in consumer debt. Consumer debt includes a variety of personal credit accounts, such as credit cards, auto loans, mortgages, personal loans, and student loans.
Recent data from the Federal Reserve reveals that credit card debt increased to $840 billion as of the first quarter of 2022 up from $770 billion in the first quarter of 2021. The average household credit card debt is $8,701, and 54% of adults in the U.S. are carrying credit card debt.

Why Do I Need an Emergency Fund?

An emergency fund is a financial safety net for future mishaps and unexpected expenses. Emergency funds should typically have three to six months’ worth of costs, although the 2020 economic crisis and lockdown have led some experts to suggest up to one year’s worth of living expenses.
Reasons why an emergency fund is necessary:
Job loss
Major health expense
Major dental expense
Emergency pet care
Car repairs
Home repairs
Tax bill
Unanticipated travel
Funeral costs