Part of heading off serious debt problems is recognizing when you may be heading toward them.
Our Southern Colorado Chapter 7 bankruptcy lawyers have seen a number of clients who file for bankruptcy years after the warning signs started flashing.
In some cases, there wasn't much they could do about it. When you get derailed by an illness or a job loss, you may have little choice but to roll with the punches.
Other times, though, you may be able to address certain issues and establish alternatives.
One of the prime examples of this is credit card use. Credit card companies are experts at making money, and their ultimate goal is to make money off you, whether through annual fees or high interest rates or missed payment penalties.
The average consumer has three credit cards, according to credit bureau Experian. Only 15 percent have more than seven cards. Reuters recently profiled a man who had 40 credit cards - and was making money off of the cash back rewards! But the fact is, that is extremely rare. The issue is not so much how many cards you have, but rather how much credit you are using.
Typically, as long as you don't apply for too many cards at once, you could have a dozen credit cards and not be in trouble. In fact, it may actually boost your credit score if you have credit that you aren't using.
However, the problem is when you take out more credit than what you can afford. The more credit cards you have, the more tempted you will be to utilize that credit.
So let's say you have $100,000 in credit that is available to you. If you have $10,000 in credit actually charged on those cards, you have a 10 percent credit utilization ratio. FICO indicates that those consumers who have the best credit scores (generally defined as 760 and over) have a credit utilization ratio of 7 percent.
So as with anything else, the bottom line is to control your actual spending. If you can have more cards and honestly say you won't take out the credit on them, by all means, have more. However, if you worry that having access to that credit may tempt you to dig yourself deeper in debt, simply decline those offers.