Six signs your credit card debt is out of control — and how to fix it
Recognize the warning signs and take the first step toward becoming debt-free.
Contributing Writer at Tally
October 24, 2018
Wondering if your credit card debt is out of control? It's more common than you think.
Millions of Americans are working every single day to not only overcome their credit card debt but to break the stigma that often comes with it. The average U.S. household debt is $5,700, according to an October 2018 report from ValuePenguin, and that number jumps to an average of $9,333 for balance-carrying households.
Let's be clear: There’s no shame in having credit card debt!
But there are a few simple steps that can go a long way in fixing the situation. The most important thing you can do is recognize and acknowledge the problem. Once you do, a steady approach and consistent discipline will put you on the road to becoming debt-free.
1. You worry too much (or too little) about your credit card debt
If your credit card debt is keeping you up at night or distracting you at times when you should be focused on something else, you need to change something.
Credit card debt is a major source of stress and anxiety for many people, and that stress isn’t unique to people in debt. A majority of people experience some form of anxiety over their credit cards; in many cases, that anxiety is comparable to what people feel while awaiting medical test results.
On the other hand, if you notice yourself trying to avoid thinking about your credit card debt, or if you’re keeping your debts secret from your loved ones, now’s the time to address it head-on.
It’s natural to ignore things that are causing stress in your life, but blocking out your debt from your mind will only get progressively worse due to interest rates. This type of behavior is commonly seen in people who don’t open their credit card statements there’s bad news inside.
Advice: Put the problem in real terms and make a plan.
Gather all of your outstanding balances in one place and display it prominently to constantly remind yourself of how you’re working to fix the problem. Create a document that shows you when each payment is due. Then, list your accounts in order based on which have the highest interest rates — these are the ones you want to pay down first.
This debt repayment strategy is known as the debt avalanche method.
On another document, calculate your monthly net income and the expenses you need to live. This is crucial information to have on-hand as you start to piece together your plan for wiping away your credit card debt. Once you know these amounts, use them to create a realistic budget that you can follow.
2. You max out your cards or regularly hit your credit limits
If your credit card has been maxed out, there's a good chance you debt is out of control. The same is true if you’re making partial payments every month and consistently hitting your credit limit.
This is an uphill battle that you can’t win: Interest rates will prevent you from ever getting out of debt this way.
Advice: Put down the cards and walk away.
If using your credit card is simply irresistible, remove the temptation. Throw the cards in a drawer or give them to someone you trust.
Whatever it takes to get the cards out of your wallet and out of your reach.
Once you do this, you’ll start reducing your debt and without adding to it (outside of the interest you’re accruing).
3. You use your credit cards without a plan
When you use a credit card, it should always be according to a plan. Maybe it’s to take advantage of a rewards or cash back program. In that case, the plan is to make your money work for you.
But if you’re just using credit cards because that’s the only way to pay for something, you’re not making a smart use of your debt.
As a rule, you should never use a credit card unless you have an actionable plan for paying off the debt as soon as possible.
Advice: Create a strict spending regimen.
Most of us would benefit from cutting non-essential expenses from our monthly budgets. If you have a problem with credit card debt, look for manageable ways to reduce your spending.
There will be difficult decisions — passing on a wardrobe upgrade, declining a vacation invitation — but it’s necessary if you ever want to get out from under your growing debt.
Adding income is usually more difficult than cutting expenses, but both can help. Take the plan you created earlier, put it into action and resolve to minimize your spending as much as possible.
4. You can barely make a dent in your balance
You’re making payments every month and you’re even limiting your expenses. But whenever you get a new bill, your balance just hasn’t dropped as much as you expected.
That’s because your payments are too small to offset your interest charges — and it's a sign your credit card debt is out of control. (Learn more about how APR affects your credit card debt.)
Paying the minimum amount you owe on your credit card balance is, of course, better than missing a payment, but it won’t make a major impact on your debt. And it definitely won’t help you get out of debt quickly.
It’s more like kicking the can down the road.
Advice: Be methodical about your payments.
This goes back to the debt avalanche method. But before you do that, start by making sure you never miss a payment.
When you miss a payment on your credit card balance, your credit score is penalized, and you’ll actually end up owing even more money. And if you miss consecutive payments, the credit card company can increase your interest rate, making your uphill slog even tougher.
Instead, identify which balance has the highest interest rate and focus all your attention on paying it off while still making minimum payments on your other balances. After you pay off the balance with the highest interest rate, move on to the second highest.
It isn’t realistic to pay down all of your cards equally and expect to close the balances around the same time. A one-by-one approach is the most efficient option in terms of both time and resources. Over time, the debt avalanche method saves you the most money.
5. Your shortcuts don’t actually help
Many credit card companies allow balance transfers on new accounts that have an interest freeze for an introductory period. This may seem like an enticing option if you’re struggling to pay down debts.
But if you’re just transferring your debts from one place to the next without making a significant impact, this solution isn’t right for you. (Balance transfers often come with their own fees, too, meaning it isn’t as worthwhile an option.)
Another misguided move is trying to pay down your debt by taking on other forms of debt. This includes:
Check advance loans
Importantly, many of these so-called “solutions” are basically the same thing, just different names. Don’t be fooled: These options will only put you in a deeper hole.
Advice: Set a goal and stick to it.
One of the keys to getting out of credit card debt is being realistic. Set a reasonable date and then take the necessary steps to achieve your goal within that time frame.
If you need help determining a realistic goal, use an online calculator to figure out how long if will take to be free from credit card debt and how much money you’ll spend in interest along the way.
6. You’re taking hits everywhere
You credit score is worth protecting. If credit card debt is causing your credit score to drop, that should be the only sign you need to turn things around.
While some actions only have a minimal effect on your credit score, carrying too much debt (relative to your credit limit) accounts for about 30 percent of your score.
If you haven’t checked your credit score in a while, but notice your applications for new credit cards are getting denied, it’s a sign your score has gone down.
Advice: Find ways to bring in (and retain) more money.
Here’s the time to get creative. The goal is to add money into your account. You can sell some of your valuable things that you don’t need anymore. If it’s been a while, ask for a raise at your work. If you have the free time, find professional work you can perform in your spare time. (But remember to put money aside for taxes if you go the side-hustle route).
One of the most effective things you can do, though, is take a hard look at your recurring expenses, like subscriptions and membership dues, and cut out all the ones you rarely utilize. You’ll be shocked to find out you’re still making contributions to certain groups or paying for services you don’t use anymore. And that can make a huge difference in freeing up money that can be used for paying down your credit cards.
Recognizing your credit card debt is out of control starts with being brutally honest with yourself. You need to fully understand the depth of your problem instead of trying to hide from it. Maximize your income and minimize your expenses. Make a plan to cut down the debt and stick to it. Remember, it’s never too late to reclaim your financial freedom.