by Katerina Nikolas

Created on: August 19, 2010

The warning signs are there if your debt starts to run out of control but many people fail to heed them until their debt reaches the danger zone. Put simply if you have debt which you cannot afford to make repayments on and have to resort to credit cards or pay day loans to fund day to day living, then you have stepped over the line into danger.

The majority of people carry some form of debt but there is a difference between necessary and unnecessary borrowing. Whilst a mortgage still represents a debt it is not a burden if the payments can be met comfortably and the homeowner has an emergency fund in a savings account. Unfortunately many are too near the financial abyss and live day to day, with no emergency funds saved, and an unnerving amount of debt represented by loans and profligate use of credit cards. If you are in the position of only being able to afford the minimum payment on your credit cards your debt is becoming unmanageable. A rise in interest rates or a late payment charge could put you over the edge.

Many people fail to realize that their own financial behaviour can turn a bad situation into a worse one. Already short of cash one of the worst mistakes you can make is to take a cash advance on your credit card which is charged at a far higher rate than the interest on your overall credit card debt. If you are only paying minimum credit card payments the debt will grow each month, as this does nothing to reduce the principal, and monthly interest accrues on top of monthly interest.

If you take a second pay day loan to pay the first one back then you probably already realize that you are in well over your head. If you are avoiding calls from collection agencies then expect to be on the receiving end of court proceedings. If you have unpaid debt secured against your home then you can expect to receive a notice of foreclosure.

If these signs are there then it is imperative that action is taken to drastically slash expenditure until repayment of the debts is back on track. Credit card use must be stopped and options considered to control the debt. In the UK the debt advice charity CCCS reported that over 30,000 debtors who approached them for advice last year were beyond help. The only possible way they could tackle their debt was to increase income. This should be a priority for anyone looking at a doomed financial future.

Debt will not go away if ignored and if the debt is at the desperate stage you may need to consider bankruptcy. Do not be tempted to pay a fee to a debt management company to try and sort it out for you but start to be proactive yourself in tackling the financial crisis. Look out for the warning signs that your debt is becoming out of control and tackle it early to avert the worst case scenarios.

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