Debt is a way of life in America–we lived it and were able to escape. We had a huge mortgage on the dream home we designed and built. We had lots of credit card debt, two car payments and no savings.
We were living the American dream, and our marriage was on the brink of divorce. Unfortunately, there are many people like us who don’t realize they’re in trouble until they reach disaster level with their debt load.
And when that happens, they finally get to the point where they’ll do anything to escape the enormous weight of those monthly payments. Usually the turning point occurs when a person has an epiphany of some kind, and there is a “light bulb” moment when they decide to turn things around.
Here are a few warning signs that may give you that “light bulb” moment and help you realize that you’re facing a mountain of debt.
The first sign is consciously ignoring the credit card statements. If you have stopped bringing the mail into the house and let it sit in the mailbox, you may be in trouble. Bringing it into the house and shoving it into a drawer so you can ignore it is another bad sign.
If you’re Increasing your debt every month, it’s an issue. The key to turning the situation around is simply recognizing that the balances are growing in the first place. This is especially true when you pay the minimum on your credit card bills, but the balance keeps increasing because the minimum payments are barely covering the cost of the interest, and the principal isn’t even being touched.
Living paycheck to paycheck is not fun, especially since some people who do this have a nice healthy income, but most of it is obligated to pay debt. When your debt payments consume so much of your income that you’re living down to the penny, it’s time to do something about it.
Getting married is a joyous occasion, but what happens when you realize your spouse has just as much debt as you do? When your combined debt doubles overnight, you are going to have problems. If you and your spouse decide that enough is enough, and you work together to pay off all your combined debt, your marriage will be MUCH stronger.
If your debt payments add up to more than your rent or mortgage payments you are in trouble. Housing costs should be no more than 38%-40% of monthly net income. That includes all housing costs, rent, mortgage, insurance, utilities and maintenance. If more than 40% is obligated to debt payments, there’s only 20% for everything else in your budget—clothes, food, medical, education, savings and transportation.
Moving in with family members because you can’t afford to make rent payments should be a serious wake up call. You may love your parents, but do you really want to live with mom and dad again, and do they really want an adult child to move in with them?
A good credit score is essential if you ever want to buy a house, take out a car loan, borrow money to start a business, rent an apartment or even get a job. Unfortunately, your credit score can suffer if you owe too much money in relation to your credit limits. Stay on top of your credit score.
A mountain of debt can create a vicious cycle of not saving, and not saving means more debt when emergencies come up. If your piggy bank looks hungry because all the money is going to pay off debt, you are making one serious mistake.
When your credit card is declined, it’s a sign that things need to change. If you see friends or family in foreclosure and worry that you may be next you are going down the wrong path.
If you have never added up your total debt, it can be a real eye-opener. List all your debts, and take a long hard look at the total number. If that number is frightening to you, it’s time to tackle the debt payoff.
Use the debt total to check your net worth. List your assets then list your debts and subtract debts from assets which gives you a view of your net worth. If it’s a negative number, you owe more money to lenders that what your assets are worth. Not a good place to be!
You know it’s time to get serious about dealing with that mountain of debt when you’re thoroughly tired of the struggle, and ready to make some sacrifices—to do whatever it takes to turn it around.
Your light bulb moment could be anything — the constant stress that comes with having lots of bills, or the simple realization about how much money you are wasting paying interest.
If all your expendable income is going to debt payments, debt is ruling your life. As the Bible tells us in Proverbs 22:7, “The borrower is slave to the lender.”
We know what you are going through. We’ve been there. When all of your expendable income goes toward debt payments, it can be disheartening, frustrating and frightening.
BUT there is nothing better than paying off all your debt and being totally debt free. We know. We are there.
If debt is holding you back, now is your moment to stop piling up more debt on top of the mountain that already exists.
Getting out of debt won’t happen overnight, but the process can’t begin until you decide it’s time. Dealing with and recovering from your debt mountain requires a life change, a total life transformation. It’s a light bulb moment that motivates you to change.
It’s not about the money . . . it’s about the change . . . the change of your heart!
Listen to the Compass Catholic Podcast, Manage Your Money God’s way podcast for more on dealing with a mountain of debt.