Unless you’re one of that well-to-do one percent, chances are that you’ve gotten off track with your finances at least once in the past 5 to 10 years. You have good intentions to not let this happen again so it’s important that you can recognize the signs that you may be headed for a personal financial disaster. That way you could get back on track before it’s too late.
Here are 14 signs that you may be headed for trouble
1. Not paying your bills on time. One of the first signs that you may be headed for trouble is if you are unable to pay your bills on time. There are several reasons why this is important, not the least of which is the damage it does to your credit score. That little three-digit number rules your credit life in an inverse ratio. In other words, the lower your score the higher the interest rates you will be charged. For that matter, if your credit score falls below 580 you could even be forced to pay more for your auto insurance, your rent and even your utilities.
2. Struggling to just make the minimum payments. The minimum payments on your credit cards are just that – the minimum that you can pay to keep from being charged late fees. If you’re having a problem making just the minimum payments this is a sign that you are headed towards serious financial problems. Plus, it will take you much longer to get out of debt. As an example of this if you owed just $5000 at 19% interest and made only a minimum payment of $125 every month, it would take you roughly 273 months (nearly 23 years) to pay back the $5000 and would cost you $6,923.14 in interest.
3. Using credit cards to make payments. If you’re doing this, it’s the ultimate borrowing from Peter to pay Paul. Don’t fool yourself. When you do this you’re just piling debt on top of debt. The one exception to this is if you were to transfer all of your balances to a 0% interest balance transfer card. This would give you a sort of timeout period of anywhere from 6 to 18 months. During this introductory period of time all of your monthly payments would go towards reducing your balance instead of paying interest. If you could heavy up on those payments you could actually be debt-free before your introductory period expired.
4.Taking cash advances. If you’re taking cash advances on a credit card this is not only a sign you’re having a serious problem with your finances but is probably costing you big money. This is because almost all credit card companies charge you a much higher interest rate on cash advances than on purchases. Next time you get a statement from one of your credit card providers check the interest you’re paying on purchases versus cash advances. The odds are that cash advances will have an interest rate that’s at least 10% higher than on purchases.
5. Being refused for credit. When you apply for any type of credit, the first thing the lender will do is check your credit score to see how much of a risk you represent. If you have a low credit score and a credit report filled with late or missed payments this tells the lender that you are a very poor risk When you’re turned down for credit it’s because the lender believes that you won’t be able to pay back the money. This is a very serious red flag.
6. Earning less than you spend. Have you ever sat down to compare your spending with your earnings? If you’re piling up debt it’s because you’re spending more than you earn. You can double-check this by calculating your debt-to earnings-ratio. The way you do this is by dividing your fixed monthly debts by your earnings. If you find you have a percentage of 40% or higher, you’re headed towards a financial cliff.
7. Reaching or going beyond your credit card limits. Thirty percent of your credit score is computed by taking the amount you owe and dividing it by your total credit limits. When you reach the limit on a credit card or exceed it, you may be denied more credit or other lines of credit. As an example of this if you had total credit card limits of $5000 and had charged up $2500 on them you would have a debt-to-credit ratio of 50%, which would be much too high. This, too, would have a very negative effect on your credit score.
8. Taking money out of your savings or retirement. When you take money out of your retirement account you lose the returns you would have earned had you left the money alone. And when you take money out of savings, you will have less available should you run into a financial emergency. Most financial counselors believe you should have the equivalent of at least three months of living expenses in a savings account to protect yourself against emergencies. When you drain down your savings account this puts you at risk for running into an emergency where your only option would be to add more debt onto your credit cards.
9. Continually paying late fees. If you find that you’re always paying late fees you are either not doing a good job of managing your money or you’re just lazy. When you’re late on just one payment your credit score could be reduced by as many as 50 points. This could drop you from having “good” credit to “bad” or even “poor” credit and prevent you from getting any new credit.
10. Juggling bills. This tactic may help you in the short run but not over time. When you start shuffling bills so that you can at least make the minimum payments on the “hottest” ones, all you’re doing is putting off the inevitable. This, too, will damage your credit score and end up costing you money.
11. Counting on a windfall. Are you putting bills aside waiting for a big Christmas check from Aunt Jane, a bonus or a commission? This is like one of those storm-warning flags that alert sailors to bad weather. It’s a distress signal that financial problems lay ahead and that you’re about to run into a storm of debt.
12. Doing the old credit card hocus-pocus. These are the words often spoken by a magician when bringing about some sort of magic change. But there’s no magic change you can make with credit cards if you’re continually making late payments or worse yet, skipping some. The only “magic” that can help keep you from falling further into debt is to pay off your balances.
13. Fighting over finances. Couples that are not struggling with debt rarely have arguments over money. If you and your spouse or partner is constantly arguing over money, it’s because you’re having financial problems. A better solution than fighting over finances is to sit down, have a calm discussion about the problem and then make a plan for getting them under control.
14. Paying overdraft fees. You could be on the brink of financial disaster if you’re constantly paying fees for overdrawing your checking account. Whether you want to face it or not, this means that you just don’t have enough money to support your current lifestyle. You will rarely find pages will get you
If you see some of these warning signs
If you see only one of these warning signs, you’re probably not headed for a financial disaster in the next few months. However, if you see three or more of these danger signs it’s time to buckle down, get to work and make a plan for getting your finances under control – before you start hearing from debt collectors. Trust us when we tell you that debt collectors are in general not very nice people and if you fall into their clutches, they can make your life miserable.