With the economy–especially employment–languishing in the doldrums, the American consumer appears to be re-evaluating a relationship with a longtime friend and companion: the credit card. For years, too many American consumers have over-borrowed and over-spent, and credit cards were the fuel to the fire.

Clearly, it’s time to get real about our reliance on credit cards.

But how much credit card debt is too much? Shakespeare spoke of the “seven stages of man.” Here are the seven stages of credit card debt. If you’re past stage three, take corrective measures immediately.

Stage One: Here and There

The vast majority of people use their credit card(s) sparingly at first. If it’s possible to pay cash, you should pay cash. But for an unexpected event or an emergency, you may need to use your credit card.

Congratulations, you are healthy and young in terms of credit card debt.

The key to staying at this totally innocuous stage is controlling credit card usage. When you use your credit card infrequently, there is very little chance that you can rack up too much credit card debt. Many people are trying to go back to this stage. One recent study by market research firm Mintel found that 43 percent of Americans were using debit cards more and credit cards less as a result of the recession.

Stage Two: Carrying a Manageable Balance

It’s not always possible to pay for everything as you go. That’s why they call it credit.

Carrying a manageable balance on a credit card can be perfectly healthy. What’s “manageable,” of course, depends on who’s managing the debt. If you’re a student who’s on track to graduate with a degree in an in-demand field, carrying $10,000 in credit card debt may be worth it if it means you have time to study.

If you’re living on a fixed income and that’s not going to change, you should watch your spending closely.

Stage Three: Stretching Payments Longer Than 12 Months

If you bought a big screen TV at the beginning of 2009, plan to pay for a big screen by the end of 2009. This rule, while informal, can really help you not get into too much credit card debt. If you can’t pay for it within the next year, don’t buy it with a credit card today.

Stage Four: You’re Proud of Paying the Monthly Minimum Payment

When you are proud of making the monthly minimum payment on your credit cards, your financial life may be in severe danger. With just $5,000 of credit card debt at a minimum monthly payment of $125, it would take you 276 months and $7,023 interest paid to clear off your debt.

Moreover, your credit score can decline when you only pay the minimum payment.

Stage Five: This Whole Arrangement Is Very Confusing

If you don’t know essential facts such as the interest rate you’re paying on each credit card, how much you owe on each credit card, and what you bought that cause you to owe this money, you have too much credit card debt.

Find the best credit card you can or even a debt consolidation loan, and balance transfer as much as possible to that account. Simplify your financial life now by any means necessary.

Stage Six: Your Debt-to-Income Ratio Is More Than 40 Percent

Add up all your monthly debt expenses. These expenses include all recurring credit-based payments, such as mortgage, car payments, and student loans. When inserting credit card payments into that mix, double your minimum monthly payment for each card and use that figure.

Add up those numbers to arrive at one number: your total debt obligations per month.

Now add up your monthly income–net (what you actually take home), not gross.

Now divide your debt by your income to arrive at a percentage.

If your monthly debt is more than 40 percent of your monthly income, and credit card debt is a big part of the reason why, you may have too much credit card debt.

Stage Seven: The Impossible Situation

There comes a time in many people’s credit lives where the situation is quite simply impossible. You are unemployed, for example, with $20,000 in credit card debt, you can barely pay the rent and eat, let alone handle all this debt. Obviously, you have too much credit card debt. The question is what to do about it.

If you find yourself in the impossible situation, it is time to take an honest look at your finances and begin taking proactive steps, such as cutting back on monthly expenses or credit counseling to get your debt under control.

Published 01/13/11