Three signs that debt could be spiraling out of control

As we have mentioned in past blog posts, debt has almost become a normal part of life. After finishing school, getting a necessary surgery or even purchasing a home, it is common for people to have debt.

Unfortunately, it is sometimes too easy for this debt to start becoming overwhelming, but how do individuals know their debt might be out of control, or when it might be time to consider filing bankruptcy?

Here are three common signs that debt might be out of control.

1. Individuals live paycheck to paycheck

A common budgeting rule states that:

  • 50% of someone’s income should be used for bills and necessities;
  • 30% of the income can cover other expenses, including entertainment and hobbies; and
  • 20% of income should go to savings and debt repayments.

However, these guidelines are not feasible for many New Mexico families. In fact, according to Forbes, one in ten workers across the country live paycheck to paycheck. Therefore:

  • Nearly all of their income is used to cover necessities, such as food and shelter;
  • They might not be able to afford minimum payments on their debt; and
  • There are not enough funds to save money or create an emergency fund.

Financial struggles like this are common. And, unfortunately, they can often cause debt to increase even more.

2. Individuals are borrowing more to pay their bills

Many people look for ways to eliminate debt as fast as possible, especially if they cannot afford to pay off their debt. For example, some people might consider taking out a loan to pay off debt, such as using debt consolidation to repay credit card debt.

Oftentimes, this only creates even more financial risk.

3. Debt collectors begin to call

One of the most critical – and frightening – signs that debt could be out of control is when debt collectors start calling and demanding payments.

The Fair Debt Collection Practices Act protects individuals against creditor harassment and abusive debt collection. It also provides individuals with specific rights when dealing with debt collectors. However, individuals should take collection calls seriously.

Bankruptcy can help individuals regain control

Many people still see bankruptcy as a last resort to get their finances in order and take care of their debt. However, the United States Constitution provides individuals with options to handle debt with bankruptcy.

Bankruptcy can help eliminate the stress that debt can create in an individual’s life, and help them take control of their life and finances again.