How To Know If You Have a Debt Problem

A while back I had a discussion with a friend on MSN over credit cards and he asked me how much I owed on my Visa. When I told him my current balance was over $12,000 he exclaimed “Oh man! You have a debt problem! I only owe $2,500.” I asked him if he was going to pay the full balance off when the bill comes. He replied no, that he was making $300 to $400 a month payments on it and hopes to have it paid off in 7 to 10 months (assuming he doesn’t keep charging on it). He then asked me what kind of payments I’m making on my Visa bill. I replied “$12,000.”

The size of someone’s debt doesn’t tell you if that person has a debt problem. I have a friend who charges over $100,000 a month on his Amex. Does he have a debt problem? Not at all. He pays off the full balance when the bill comes. I have a really simple way to determine if someone has a debt problem.

You Have a Debt Problem If You Can’t Pay Off Your Credit Card Balance

Sounds really simple doesn’t it? It’s not the text book definition of a debt problem but it’s mine. Everyone knows that running a credit card balance is bad, so it stands to reason if you have to run one, you’re in a bad situation and therefore have a debt problem.

What about those “low interest” credit cards? Does it apply to those when you run a balance? The answer is yes. Almost 100% of the time, a credit card is used to buy butter. That in itself ranks the debt as bad. And if you can’t pay it off when the bill comes then it’s really bad because you are now living beyond your means.

Almost 50% of people with credit cards run a balance. If you’re among the 50% that fell into the credit card trap, then you need to take your credit cards, put them in a cup of water and freeze them. You’ll never fix your debt problem if those cards are in your wallet. I am not against credit cards. I love them and can’t live without them. However, I always pay them off no matter how high the balance gets. The smart use of a credit card is a very powerful tool. But like all tools, it can be abused.

Having said all this, I will say that at the end of the day, people who run credit card balances don’t really have a debt problem. They have an income problem. But that’s for another blog post.

8 thoughts on “How To Know If You Have a Debt Problem”

  1. Josh says:

    Very interesting post, I think pretty much the same way i use my credit card mainly online since a lot of places take it over paypal and when i buy advertising and such for my sites i use the card. But at the end of the month when i get paid i pay off that credit card balence.

    I am only 20 and when my parents hear that its almost maxed they seem to get stressed or worried about it but after a few mins of talking they reply ya its true we know nothing about the internet lol

  2. Christoph says:

    I am the same way. I have 3 credit cards. One is never used and really for the extrem emergency. The second one is for personal use and the 3rd one for business. All cards are being paid off monthly. That’s the way to go.


  3. I have a drink problem, I buy drinks, pay them with my credit card, and can`t afford the bill at the end of the month.

    So I`ll start paying my drinks with cash 🙂

  4. John Chow says:

    Juan – Very smart!

    Josh – If you come close to hitting your credit limit then you should call your CC provider and ask them to increase your limit. Your FICO score is affected if you hit your limit too often.

    Christoph – I hope you’re using a reward card. 🙂

  5. Christoph says:

    I sure do, John. I prefer my American Express Blue Card for all expenses. 🙂


  6. Thomas Czaszynski says:

    John you say you always pay off the credit card after the end of the month.

    Why not live in a 1 month advance way, where at the beggining of the month you have that $12,000 in cash,, maxx out your credit card and then pay in the $12,000… plus have another $12,000 in hand.

  7. John Chow says:

    As I’ve stated above, it’s not a good idea to max out your credit card because it negatively affects your credit score. If you find you’re always hitting the limit of your card, then you should have your credit card company double the limit.

  8. Joe says:

    Thanks for that wonnderful advice mr chow. I have a debt problem, but I am going to pay my debt down and live like you suggest, your score must be awesome.

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