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Watch for these credit-card debt red flags

Credit-card debt is easy to fall into, but digging yourself out can be a daunting process. American consumers are more than $850 billion in debt to credit card companies, according to recent estimates, with many people seeing debt relief because of their dire financial situations. Cards are, in fact, the third highest contributor to debt, only following mortgages and student loan debt. You can prevent your credit cards from affecting your credit score by monitoring for several red flags before a problem arises.

If you have maxed out your credit cards or the lender has lowered your card limits, you could be tipping your credit-utilization ratio out of your favor. This ratio, which compares the amount of available credit to the amount that is used, directly affects your credit score. Lower credit limits could perpetuate a negative cycle that rapidly spirals downward, along with your credit score.

Furthermore, if you are subject to 20 percent interest rates, you should consider whether your credit card debt is appropriate for your life situation. Non default rates of 20 percent or more can add decades on to the time required to pay off the credit card. Also, if it is a struggle for you to make minimum payments, you should consider seeking debt relief. Interest rates and minimum payments will climb together if you default, causing even more financial problems. Be sure that you do not go into default and trigger those higher interest rates or minimum payment requirements.

Also, your credit card payments should not exceed 15 percent of your gross income each month. Ideally, the payments should be well under 10 percent, especially if you are sticking with minimum payments alone. If you are spending too much each month on cards, you may be unable to fund your retirement accounts, which can cost you further down the line. The stress, anxiety and other unpleasant emotional effects of high credit card debt can be further indicators that you should seek debt relief.

Source: The Arizona Republic, "7 red flags of credit-debt overload," Robert Anglen, Jan. 26, 2013.

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