AEM Mortgage Minute with Deanna Daughhetee

I’ve found that a lot of people aren’t sure how to determine how much debt is too much debt. So I’d like to share some tips about how to recognize some early signals.

Some warning signs—like calls and letters from creditors, bounced checks and maxed-out credit cards—wave a big red flag that says “Slippery Slope Ahead.” Other warning signs aren’t so obvious—and if you ignore them, you’re headed for trouble. But if you pay attention to the following early warning signs, you can get back on track before your debts get out of control.

First, take a look at how you pay your bills. And be honest with yourself. Are you paying your monthly bills with income—or with debt? If you’ve made a habit of charging recurring bills to your credit card, you’re floating your bills from one month to the next. That might be a good way to earn a free trip to Maui, but if you don’t pay off your credit card bills in full, you’re paying interest on those already sky-high energy bills.

Here’s another thing to watch for. If you’re only able to make the minimum payment on your credit card balance, you’re carrying too much debt. Just for example, say your minimum payment is 4% of your balance. With a $3000 balance at a 19% interest rate, it would take you 11 years to pay off your debt. And if your credit organization requires only a 2% payment, it would take you more than 40 years to pay it off (including $10,000 in interest)! If you want to figure how much interest you’d pay making minimum payments on your balance, visit http://www.webwinder.com/wwhtmbin/java_cci.html for an easy-to-use interest calculator. If you are only making those minimum payments, it’s time to get aggressive about reducing your debt.