How Much Debt Is Too Much Debt

According to Ambrose Bierce the definition of debt is as follows:

“Debt n. – An ingenious substitute for the chain and whip of the slavedriver.”

Debt is an enslaver. All who are under debt experience the chains of stress as due dates approach and the lashes of pressure to pay them off. There are compassionate loan agencies, such as Platinum Direct, who are eager to help with debts, but at the end of the day, the only person who can solve the problem of debt is you.

As long as debt hasn’t multiplied itself like a virus, you have a better chance of paying it off. However, there are some debts that you’ve allowed to evolve to a monster by feeding it and prolonging it. Here are some signs you have too much debt:

1. You have more than 2 credit cards

Any person should never have more than one credit card. Credit cards give the illusion of having instant cash, well you do in a way, but cash that isn’t yours. That credit card may be in your wallet, but the value in it isn’t really yours.

You’re just borrowing it. So whenever you see a credit limit of $50,000, that doesn’t really mean that you have $50,000 to spend. Just think how much more if you had 3 credit cards, in your head that’s $150,000 at your disposal. This is a recipe for a disastrous debt. Having 3 credit cards is like juggling 3 women – it spells disaster.

Limit yourself to just one credit card or two at the most. Don’t give yourself the illusion of having money at your disposal when in fact you don’t. The moment you start to fall into debt because of this, it may be insurmountably difficult to pay it back.

(Related  – Choosing the Right Credit Card? Consider These 10 Factors)

2. Your credit cards are maxed out

You know you’ve got a heavy handful of debt if you’ve maxed out all your credit cards. If you’ve done so, you have a real problem dealing with reality. If you’ve got an income of only $5,000 per month, what were you thinking when you maxed out a $20,000 credit limit on 3 different credit cards? That’s $60,000 spent on a single month.

Did you really think the bank was okay with you paying them off after 5 years? Okay, I may have exaggerated a bit, but it’s only because I want to drive my point across. Deal with reality, know how much you can pay off and stick to spending only that much.

(Related – When Should I Use A Credit Card?)

3. You are late in your payments

Being in debt is a terrible situation. It sucks the life and sanity out of you because it’s always there at the back of your mind. Aside from trying awfully hard to make ends meet, you still have to stress about payments. And if you’re behind on your payments it means you bit off more than you can chew on your loans and credit.

When you are already in this situation, you only make your debts worse because of ‘late’ penalties. You have to re-evaluate your priorities. Cut off on all unnecessary spending. If you have to tighten your belts for a couple of months, then cope. It’ll all be worth it when you’re finally debt free.

(Related –  Pay Your Bills On Time)

4. You have no savings

Another warning sign of being in too much debt is having zilch on your savings account. This means that the moment you receive your salary, it goes straight to payments and basic necessities. You should never borrow or have too much credit to the point that you can’t save. Saving should be one of your top priorities. Choose saving over a pair of Jimmy Choos.

If you are already behind on payments and dealing with so much debt, saving might not be practical now. But, make sure that you at least have health insurance to cover you just in case something happens. If you don’t have insurance, you will plunge into an even deeper abyss of debt – should something happen (knocking on wood).

(Related – 101 Ways to Save Money Everyday)

5. You’ve borrowed money from everyone you know

Borrowing from friends is a bit dangerous. Gene Brown even said, “Before you borrow money from a friend, decide which you need more”. It takes a very desperate person, to borrow money from people they know personally – it debases you and strips off any ego you may have had.

This is a much too clear sign that you’re handling too much debt.I had a friend once who did so, she said it was deeply embarrassing and wouldn’t want anybody to be in the same situation.

Small debt, big debt, good debt, bad debt – does it really matter? Debt is debt. And it enslaves all who are under it. If you see these signs of debt plaguing you, then brace yourself and develop a strategy on how you can pay it all off as quickly as possible.

Author Bio: +Lara King is a student of finance completing her MA in Sydney. She likes to write about loans and refinancing and is doing a thesis on loan practices in Australia.

SB’s Thoughts – I agree to all the above points except the first one. Simply because I carry 4 credit cards and I never been in debt. I do not use more than 10% of my credit line on any of my cards. I strongly encourage readers to read our very popular post 51 Ways to Get Out of Debt in case you are looking for ways to free yourself up from debt trap.

There is a calculator at MSN Money which can tell you if your debt is too much. You need to put your monthly income, mortgage payment amount and total consumer debt you have. Here’s another article that may tell you if you have too much debt.

Readers, a simple question to you, how much debt you think is too much? In terms of percentage of your income or assets.