NEW YORK -- You're fighting with your spouse over money. Or you're waking up at night worrying about the bills. Or you're taking cash advances on one credit card to pay the minimum due on another.
All are signs of getting too far into debt, credit counseling experts say. These "debt triggers" should be the cues for consumers to take stock of where they are financially so they can get spending in check and begin dealing with debt.
"If more than 15 percent of your take home pay is going to unsecured debt, you need to take a cold, hard look at your finances," said Howard Dvorkin, president of Consolidated Credit Counseling Services Inc., a nonprofit agency in Fort Lauderdale, Fla.
Put another way, "if you're making $1,000 a month after taxes and you're paying out more than $150 in credit card bills, a light should be going on," Dvorkin said.
A recent survey by the Cambridge Credit Counseling Service found that more than one-third of consumers pay their credit card bills in full each month. At the other end of the spectrum, 39 percent paid only the minimum due, and 3 percent made no payments at all. The rest fell in between.
Failure to pay can result in added late fees, while paying just the minimum each month can greatly increase the overall cost.
Take a consumer who owes $2,000 on a card that carries 13 percent interest. Pay just the minimum, usually 3 percent of the balance, and it will take more than 11 years to pay off the debt and cost $1,024 in interest. Double the payment to a flat $120 a month, and the debt is gone in 1 1/2 years at a cost of $218 in interest.
So what are some of the warning signs that should give consumers pause?
Kelly McGraw, an adviser at Novadebt, a nonprofit credit counseling service in Freehold, N.J., said there are different triggers for different people.
"Some start missing payments and begin getting calls from collection departments or collection agencies," she said. "Or they try to use their cards in a department store and find they're maxed out."
At that point, McGraw said, some consumers go into denial and stop opening their statements.
"But you have to open it so you can begin dealing with it," McGraw said. "It won't go away if you try to ignore it."
McGraw got into trouble with credit card debt in college and got out of it by working out a budget and repayment plan at Novadebt, where she now works.
"It wasn't painless," she remembers of dealing with $3,000 in debt. "I cut up the cards and spent more than two years paying it off. ... But I fixed it before it spiraled out of control."
Dvorkin of Consolidated Credit said consumers should regroup when they find themselves:
- Making the minimum payment month after month.
- Taking cash advances on one card to pay others.
- Putting off trips to the dentist or doctors because they don't have the money.
- Paying bills with money intended for other things, like utilities or groceries.
- Depleting savings to pay current bills.
"Very often it's a life event that gets someone in trouble," Dvorkin said. Divorce, the birth of a child, buying your first home, changing jobs - all result in changed financial circumstances that require spending adjustments.
"People start slipping off the tightrope, and it's difficult to get back on," he said. "But it can be done."
Getting bills under control requires what Dvorkin calls "a kitchen table session" to determine who you owe, how much you owe and what adjustments you can make in spending so more money is available for bill payment.
"You can ask companies for interest rate abatements or reductions, or you can try to merge your debt onto a single, low-rate card," he said. But these aren't the solution, just steps toward a solution.
"The bottom line is, you need to pay it off, and the more money you dedicate to it, the faster it will happen," Dvorkin said.
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