It isn’t always difficult to spot an unhealthy relationship from a mile away. But when you’re in the eye of the storm, things may seem a lot more convoluted.
As with most unhealthy relationships, you may have moments of sheer doubt. When is it right to walk away? Is it time to finally put your foot down? How much is too much? For the 300 million Americans drowning in debt, this may not be an unfamiliar territory.
They say it takes two to tango, but some unhealthy relationships require just one irresponsible financial decision to lead you down the rabbit hole of bad credit. There’s no denying that credit is the gateway to making your dream life a reality—what could be better than getting the things you want and paying them off later?
For many people, that’s how the trouble begins. And when millions of people find themselves in the same toxic relationship with credit, the inevitable result is almost $14.5 trillion of household debt!
As with any bad relationship, the cracks begin to form way before the final bough breaks. If you’ve been wondering whether you and credit are a bad match, here are some of the signs to look out for:
Your credit balance is (almost) never zero
What makes credit cards so great is that you can purchase the things you want without having the money to pay for it readily available. In a perfect world, you’d pay off the amount you owe within the grace period without having to pay interest on your balance.
However, increasing credit balances are an unfortunate reality for many of us. Finding yourself in credit card debt isn’t unusual, but incredibly difficult to step away from if you don’t manage your monthly payments efficiently.
Only paying the minimum amount due every month doesn’t just leave you with mounting debt, it also affects your credit history. Payment history makes up a considerable chunk of your credit score and ever-increasing unpaid debt is a bad predictor of future borrowing.
Your credit cards are maxed out
The first sign of debt trouble comes in the form of maxed-out credit cards—and by this point, it’s too late to get help. If you keep setting aside maxed-out credit cards without repaying them, you’re headed for serious credit trouble.
Credit utilization is an essential component of your credit score. As a representation of how close you come to your credit limits—or how frequently you max-out your cards—this is a big red flag to look out for.
Making large payments with your credit card isn’t the problem. It’s carrying big balances and irresponsibly handling your debt that sows the seeds of trouble.
You don’t have a budget in place
Money is a common stressor for many people, slowly trickling into other aspects of their life and affecting their health. A common cause of such unchecked spending and resulting money trouble is the lack of a budget.
According to recent studies, the percentage of respondents who followed a budget fell from 70% in 2018 to 67% in 2019. It’s no wonder that annual debt is soaring as unchecked spending continues.
Without keeping track of your expenses and income, it’s easy to overspend well beyond your limit and struggle to repay those crippling debts later. This problem is exacerbated when you have a credit card at your disposal—without a strict limit to your spending, a monthly shopping spree could set you up for a hefty credit balance.
Your credit score is holding you back
A good relationship with credit can open several doors for you. How you deal with your current debt is a significant indicator of your future as a borrower—that’s why your credit score relies on various factors regarding your relationship with credit.
Good credit scores rely on prompt repayment of your credit balance, a lengthy credit history, and your ability to handle credit. As your credit score moves closer to 850, you appear to be a more viable borrower to lenders. A good credit score enables you to get approved for new credit or receive loan approvals.
However, if your credit score has taken a hit recently, it’ll negatively reflect your creditworthiness. Is your low credit score hindering financial transactions like private loans? Are you struggling to get approved for a new credit card?
Bad credit is an indication that your credit history has considerable blemishes, hinting at an unhealthy relationship with credit. Not only does this present immediate problems, but it also makes it challenging to improve your credit scores for future transactions.
It isn’t all gloom and doom, though. Many loan and refinancing providers—such as Education Loan Finance—offer flexible terms and great rates that are a viable alternative for you. There are ways you can overcome the problems that resulted in a denial when you applied for a loan or refinancing.
You’re paying for essentials with credit
Since credit scores rely on past payment history, many people prefer to set up automatic payments for their essentials with their credit card. This is a great idea if you’re looking to work your way toward a good credit score. When you’re paying for your essentials with credit and then repaying your debt from your pre-assigned budget, you rack up a payment history that proves you’re good with debt.
However, if you’re relying on credit to pay for your essentials every month, it may be time to have a serious discussion about your debt troubles.
When necessary expenses make their way to your credit card, it’s often a sign that you’re struggling to make ends meet. The mounting interest on your credit card bills won’t just make it increasingly difficult to repay your balance, but it’ll get in the way of monthly bill payments.
A Final Word
The first step toward addressing your problem is recognizing it —and, if you’re reading this, you’ve already cleared that stage!
It’s never too late to step away from a bad relationship, recognize what you’re doing wrong, and set off to make amends. Your relationship with credit has far-reaching implications for other aspects of your life and you can make the necessary changes with a dedicated financial advisor by your side.
Education Loan Finance is one of the leading student loans and refinancing providers across America. The company has helped countless students make their college dreams come true through student loans, parent loans, and refinancing options for their existing loans with more favorable terms.