Most people carry some debt, but knowing when it's getting out of control is another matter.
While everyone's financial situation is different, there are some tell-tale signs that you may be at risk of defaulting on your loans and credit card payments, says Leslie Tayne, founder and head attorney at Tayne Law Group.
Tayne and her team have resolved tens of thousands of debt cases over the past two decades. Over that time, she's picked up on several red flags that you may be in over your head with debt. Here are five to watch out for.
1. 50% of your gross income is spent on housing
A general rule of thumb says that your housing costs should not exceed 30% of your gross income.
However, that's become increasingly difficult for Americans who earn less than $100,000 per year, due to increased rent prices and homeownership costs.
While it's OK if you need to spend a little more on housing, aim to keep those expenses under 50% of your gross income, Tayne says. The more you spend on housing, the less flexibility you have to cover other expenses.
In Tayne's experience, putting 50% or more toward housing is the "tipping point" that someone is likely to get into debt. "When I look at somebody's budget and the first line item I see is housing expenses close to 50%, I know exactly what position they're in, and the challenges they're going to have," she says.
2. You've been rejected for balance transfers
A balance transfer allows you to move your debt from one credit card to another. To entice new customers to switch cards, many banks offer 0% interest for a period of time — usually 12 to 21 months — if you switch to their card.
While 0% interest balance transfers offer temporary financial relief for borrowers, not every borrower qualifies. If you either have a low credit score or existing credit card debt that exceeds the credit limit of the new card, it's possible that a bank will deny a bank transfer.
Being rejected for balance transfers suggests that your debt situation is already a problem that needs to be addressed, says Tayne.
3. You have more than 10 credit cards
Ideally, credit cards should be used for purchases that can be paid off right away, since the interest is typically high.
Trying to balance too many cards at once — especially if they all carry balances — can be a sign that there's "a challenge with spending and an inability to then keep up with bill paying," Tayne says.
In her experience, clients with more than 10 cards tend to struggle to pay their bills.
"Anything above 10 credit cards can suggest that a lot is going on," says Tayne. Most Americans have about four credit cards.
4. You hide expenses from your spouse or partner
Hiding expenses from a partner or spouse can lead to financial trouble. "It's very common for me to have one spouse come in and say the other spouse does not know what's happening," says Tayne.
Often, the client wants "to protect the spouse or significant other, or they're ashamed," which can lead to avoiding the problem altogether, says Tayne.
These situations may start small, but often "spiral out of control," making debt problems worse than they need to be, she says.
5. You don't know how much debt you have
While you probably don't need to know the exact dollar amount of total debt you owe on any given day, not having a reasonable idea of how much it is in general can be a hazard for your finances, Tayne says.
That's because most people have a fixed income that can only pay off so much debt.
"One of the first questions I ask is, 'How much debt do you have?' and almost everyone underestimates the total amount they actually owe," says Tayne.
If you find yourself unsure of your own debt load, start by tallying any outstanding funds in your credit accounts. You can also consider requesting a credit report from one, or all, of the three credit bureaus. Credit reports will list the amount owed on each account, along with its status and payment history.
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