How to tell when your credit card spending is already a problem

How to tell when credit cards are out of control

Credit cards are one of the easiest ways to borrow money, and this can be a problem. There are many related horror stories, and there is a real danger that credit card debt can grow faster than the borrower’s capacity to deal with it. But there are some warning signs to help a person determine if their credit cards are a problem, before it becomes critical.

One of the best ways to determine if credit cards are out of control is whether the account holder has the financial ability to make double the minimum payment. Although making the minimum payment will repay most credit cards, this will take a very long time—easily decades—and will cost a great deal of money in interest charged. Repayments should regularly total at least double the minimum required amount, and in good months more. If this cannot be done, or if it’s very hard to do this regularly, then it’s a good early warning sign that credit card debt is getting out of control.

Another warning sign is the number of cards and how many of them are at their maximum level. While it sometimes makes sense to “max out” a credit card, for example if the interest rate is lower than other forms of available borrowing, as a general rule of thumb carrying the maximum debt can be problematic.

If a borrower consistently reacts to increased debt levels by opening new credit cards, this will become unsustainable.

Another warning sign of impending financial disaster is an inability to qualify for low interest rate credit card offers that were previously no problem. This change could happen for a number of reasons, including a lower level of credit available on the overall market, or a change in jobs. But it could also be due to a lowering of the applicant’s credit rating because of all the borrowing already in his or her name.

The final warning sign is when the account holder, month after month, borrows more on their credit cards than they repay. Sometimes people are unaware of this, so it’s always a good idea to track borrowing and repayments every month. Some fluctuation is perfectly healthy, but if there is a constant pattern of increased borrowing then this will develop into a problem.