4 ways to know if your debt is unhealthy

You're working hard and doing all you can to keep your debt manageable. First off, you deserve a pat on the back for keeping your debt payoff plan top of mind—and for caring and putting in the effort. 

But how do you know where you fall in terms of debt health and your financial fitness level? In other words, how healthy is the current state of your debt? And is it where it needs to be? To help you diagnose your own debt, here are the four main elements of a debt fit score. 

1. Your current debt management 

Borrowing for things that improve your quality of life or wealth—and paying those debts off consistently over time—are signs of healthy debt management. On the other hand, not tending to your debt in a responsible way could keep you stuck in a never-ending debt spiral. 

Here are some telltale signs that poor debt management could be affecting your debt health in a negative way.  

You’re not sure how much debt you have. It's easy to shove your finances under the rug, especially if thinking about your money situation causes you stress and anxiety. You might not know the basics of your debt situation. 

Tip: Make a list of your debts. Include all the details for each debt, such as the balance, the interest rate, and the name of each creditor. You can use a debt payoff app to make this easier.

You have high levels of unsecured debt. Unsecured debts (such as credit cards) tend to cost more than secured debts (like mortgages). If you have a lot of unsecured debt, you might be paying a lot in interest charges. 

Tip: If you’re a homeowner, talk to a debt expert about whether you qualify to use a lower-cost home equity loan to pay off your higher-cost unsecured debts.

You move debt from one card to another. You might find yourself repeatedly shifting your debt from one balance-transfer card to another. While it seems like a smart idea at first, it often doesn’t work out. If a balance remains on the new card after the low-interest intro period ends, you could be stuck paying it off at a very high rate.  

Tip: Make a plan for how you’ll pay off the balance before you apply for a new credit card. 

You use old credit cards while you’re still paying down the new cards. If you've moved old debt to a new credit card to save on interest fees, you might be tempted to use the old card once the credit limit is available again. Before you know it, you’re stuck with even more debt.

Tip: Close the old card as soon as you transfer the balance.

You fall behind on payments. Falling behind on your monthly debt payments puts you in danger of ultimately defaulting on your loans and credit cards. Defaulting makes debt more expensive and hurts your credit standing.

Tip: If you’re struggling to keep up, contact your creditor and ask if they have a hardship program that could help you. 

2. Existing cash flow

Cash flow is the money that comes in and the money that goes out. Positive cash flow means you have more than enough money to cover your expenses. Negative cash flow means what you have to pay is more than what you’re bringing in.

When you have negative cash flow, you might need to lean on your credit cards to pay for daily purchases. Your credit card balance could then start to balloon. Also, your required minimum payments could get bigger. 

Using your credit card as a means to keep money in your bank account might seem like a smart solution, especially if you are counting on your checking account to pay off the card balance. But this is also an easy way to slip into a bad habit where the funds are not enough to cover the balance

Negative cash flow can make it hard to stay current with your debt, let alone get ahead. 

Tip: Talk to a debt expert about ways to lower your monthly bills to a level you can cover. 

3. Financial risk level 

Your financial risk level is simply whether you’re prepared to handle unexpected expenses. Being unprepared puts you in danger of falling into a deeper debt hole. 

Tip: Plan now for surprise expenses in the future. We all have them. Your car could need tires. Your pet could need veterinary care. You could lose your job. If you put away $25 a month, you’ll have $300 at the end of a year. Something is better than nothing. Each time you reach a savings goal, set a higher goal so you can build an emergency fund.

4. Emotional stress level

They say that money can, in fact, buy happiness (to a point, anyway). By that we mean that if you take money away from a poor person, their misery increases. If you give money to that same person, their happiness level goes up. Money lets that person pay their bills, buy the things they need, and hopefully enjoy life a little more. 

Money can affect a lot more than your standard of living. Debt stress can affect your emotional health, physical health, and mental health. Tossing and turning at night because you’re struggling to get rid of your debts could be a sign of low debt health.  

Debt health is complex and there are a lot of moving parts. To help you make clearer sense of where you stand, and better pinpoint your own Debt Fit™ Score, take our Debt Fit quiz. Think of it as a check up for your debt health, as easy as checking your pulse when you get a physical.