How do you know if have too much debt? What are some of the red flags. Pretty much everyone in America is walking around with debt of some sort. Many of us have mortgages, car loans. For the purposes of this article let us deem that mortgages and car loans are considered good debt. So, how can we determine what is too much debt?

Well, for starters, go grab a yellow highlighter. What we want you to do is highlight everything that pertains to you. Do not panic if you find yourself highlighting everything on the list.
We will list some things that you can do to get rid of those ‘red flags’.


1. It is normal thing for you to spend more than you earn.

2. You are maxed out on all of your credit cards or very close to it.

3. You use your credit cards to pay for groceries, fast food, concert tickets. Basically, if you are purchasing items that are not visible a month later, you are in the danger zone.

4. You have recently been turned down for credit or a loan. Or if you need a co-signer and you are an adult.

5. You only pay the minimum amount due on your credit cards each month.

6. You don’t even know what or who you owe or what is on your credit report.

7. You are not prepared for emergencies. For example, if you need to replace the tires on your car, you pay for it with your credit card because you do not have the cash.

8. You toss and turn at night, cannot sleep, thinking about your bills.

9. Argue with your spouse about money issues. Or you hide items that you purchased in the trunk of your car, so your spouse will not see.

10. You miss payments on one bill in order to pay another. This is called robbing Peter to pay Paul.

11. You are upside down in your car. Meaning, you owe more on your car than what it is actually worth. Either you had to finance the vehicle at a high interest rate because your credit score was so low or you sold your old vehicle and you still owed money on it and you let the car salesman talk you into rolling the money you owed on that car into your new payment.

12. You do not have an emergency fund of 3 to 6 months salary saved.

13. When your creditors call, you tell your children to say you are not at home.

14. You get caller id to screen creditor telephone calls. Hey, we’re just keeping it real, many, many people do this. But they do not realize is, they are willing to pay for caller id instead of paying the creditor they are attempting to avoid.

15. You do not have a savings for yourself, you have no college fund set up for your children.

16. You do not contribute to the 401K plan at work because you say you cannot afford it.

17. You do not have health insurance because you say you cannot afford it, but you manage to purchase everything else you want. Some examples: you get you hair done like clockwork and you get your nails done.

Determine what your debt to income ratio is. Your debt to income ratio is how much of your salary goes toward bill paying. Keep in mind that the debt to income ratio is based on your gross pay. If your salary is $800.00 per week, then your monthly salary would be $3,200.00.

Now let’s suppose your bills for the month total $1,1200.00. That would make your debt to income ratio 35%. What does that mean to you? A debt to income ratio that is less than 30% is considered excellent by banks and lenders. A debt to income ratio that falls between 30 % to 36% is good.

It means you will not have problems getting loans (as long as you have a decent credit score). But you should still try to bring your ratio under 30%. A debt to income ratio that falls between 36% and 40%.

All this means is, there are some bankers and lenders out there who would still give you a loan, but you may struggle with making your payments. And with debt to income ratio within this category will mean you will be paying high interest rates. A debt to income ratio of 40% or above is a definite red flag. At this level, your credit situation needs your immediate attention and a band-aid too.

An increasing number of people are in the 41-49% range, a zone where financial trouble is certain. A debt-to-income ratio above 50% is living dangerously. The best ratio is as close to 0% as possible, that means living a debt-free life. As we stated earlier, everyone has bills to pay, we must strive to eliminate recurring debt (credit card debt).

Why continue making the rich richer? Use your money to make yourself rich. Think about Bill Gates, he was not always rich. If he can do it, so can you. And we all know Oprah’s background. Look at her now. She had to start somewhere.

The important thing is, she started. Even if you do not have your sights set on millionaire status, you may want a home or you may simply want to pay your bills on time and have money left over to enjoy life without stressing. Get started, now is the time.

So what can you do to help yourself? The first step is recognition. Many consumers do not want to face the music. They do not want to quantify that they are in the danger zone. They do not want to admit that they’ve been cruising along robbing Peter to pay Paul, juggling credit cards and charging up their credit cards whether they have the money to pay those bills or not.

Make a (mental) note of what you are going through (are you sad, angry or happy) each time you make the decision to charge up a storm. Determine to find out what emotion is triggering your spending.

Keep track of how many times you spend and tell yourself you will find a way to pay for it later. Ask yourself, “Why am I really buying this item?” Are you trying to impress someone, a co-worker, a new guy or girl? You had a bad week or a difficult day, so you tell yourself you deserve to splurge.

In a small notepad, record everything you purchase for a month. Whether you pay cash or you use your credit card. The purpose is to help you see where you are wasting money. You would be surprised at how much you spend on clothes, food (especially buying lunch during the work week).

And for all of those coffee and latte drinkers out there, you would be surprised to know if you saved that money for two years, you would have enough money for a down payment of a house. Keep track of what you spend on coffee and latte for one week, then multiply that by 52.

That’s your home buying money that you are throwing away. And for those who are already homeowners, you could use that money to pay off one of your high interest credit card debts. Better yet, homeowners you that coffee and latte money and put into a CD (certificate of deposit). Hmmm, something think about.

The next time you want to throw your credit card on a purchase, use cash instead. It is much more difficult to fork over $100 cash on an item as opposed to using a credit card. Besides, you will pay more in the long run if you use the credit card. And that is not smart. And we know as well as well you do, your mother did not raise a fool.

Last but certainly not least, make a commitment to pay off your debt. Give yourself a specific date to have all of your credit card paid off.

Put pressure on your mouth…speak the words: I WILL BE OUT OF DEBT ON JULY 31, 2009. Be specific! Pay off the high interest rate debt first. And do not forget, after six months of paying on time, ask those creditors to lower your interest rate. Do this every six months whether you decide to pay off your debt or not. It is time we started thinking smart as a people.

Take this little test. Think about how you feel with no money in the bank. Now think about how you would feel if you had $50,000.00 in the bank. We bet you a cup of coffee, that a smile creeped across your face.

And if you need encouragement, give us a call at 315-446-4668. Or if you prefer, email us at: Tell us about the progress that you are making.

Be sure to tune in to our radio broadcast, Improving Your Credit Worthiness, every Wednesday on WSIV 1540 AM from 2 -2:30pm. To schedule a seminar or workshop for your group or church call us at 315-446-4668 or send an email to: