You’ve probably heard that old story about ostriches and how they stick their heads in the sand when they feel they are in danger. Well, that’s a myth. The reason why ostriches stick their head in the ground is to find water. But you could be sort of an ostrich when it comes to your debts – sticking your head in the ground and refusing to face up to them. This is one of the most serious mistakes you can make when it comes to your personal finances because the earlier you realize you’re having a problem with your debt, the better are the odds that you will be able to fix it. Here are eight signs that you could be headed for a financial disaster and that you might start looking for help.
Banking on a windfall
If you’re counting on a future windfall such as a bonus, a big tax refund or an inheritance, your finances could be in real trouble. Plus, it can be a symptom of a larger problem that you’re rationalizing when it comes to your debts. For example, if you’re planning on a big bonus to bail you out, you’re in real trouble if it doesn’t materialize.
Using credit card hocus-pocus
Credit cards can be useful tools if you use them sensibly. It’s an easy way to make purchases without having to carry cash all the time, plus these days you can probably earn rewards by using them. However, if you see that your credit card debt is consistently getting larger and you can’t make more than the minimum payments, your balances will continue to rise. Your interest rate could take a big jump if you fail to make a minimum payment for more than 60 days. This would make your financial condition even worse. You might be able to hold off trouble temporarily by making your minimum payments or by moving your balances to new cards. But then any sudden change in your finances could cause things to spiral out of control
Juggling fees and paying late bills
Most experts feel that this is a clear sign that you have financial trouble ahead of you. If you’re paying those late fees simply because you’re lazy, you’re basically throwing money away. If you’re juggling monthly bills by making payments large enough to keep things going – but without paying balances on time – this is even more of a symptom of a coming financial disaster.
Constantly arguing with your partner over finances
Just about every couple has fights occasionally over debt. But if you’re doing this regularly with your spouse or partner this can be a sign that you don’t have enough disposable income to cover your spending. Also, if you’re continually stressing out over your debts this can be a sign that your finances have become unsustainable.
Continuously paying overdraft fees
You could be on the very brink of a catastrophe if you’re constantly having to pay fees for overdrawing your checking account. In fact, you can actually compare NSF (nonsufficient funds) fees to those nautical signs you see that are raised to warn of a coming hurricane. In fact, if you’re getting a lot of NSF notices, this is beyond being a warning. It shows that you have a real problem. If you don’t have enough income available to cover your debts and are required to write NSF checks, you could actually be on the verge of having to declare bankruptcy.
Using retirement savings to cover expenses
Unfortunately, it’s common for people to borrow or withdraw from their retirement funds such as a 401(k) to cover their expenses. This is a bad idea under any set of circumstances but if you do this more than once, it shows you’re not managing your cash flow effectively. If you find that you’re withdrawing regularly from your retirement savings, this is more than just a warning sign that you’re living beyond your means. It will have very serious consequences for your retirement as it lessens the effects of the compounding interest that would help your retirement funds grow.
Your finances are definitely in bad shape if you are unable to put aside even a small amount of money every month. You should budget for savings just as you would any other expense. You can just count on something coming along such as an unexpected car or home repair and if you have not savings to tide you over, you may find yourself in a very bad place. Most experts say that if you have no savings, you’re basically standing on the edge of a financial cliff. While you could use credit as your emergency backstop, this isn’t as good as having an emergency savings fund. If you want to be financially healthy, it’s important to set aside money for those unexpected emergencies as well as your retirement.
Using your home as a piggy bank
You may also be headed for a financial disaster if you’re using your home equity as a financial crutch. It may be okay to take out a home equity loan if you have a serious financial need but not for a “want” such as an elaborate vacation. It’s also not a good idea to use one of those loans to pay for a new automobile. It just doesn’t make any sense to use a homeowner equity loan that you would be amortizing over 15 or 20 years just to pay for something you can’t afford or are not willing to save for.
Finally, here’s a video with more information about dealing with debt, including why its dangerous to make only minimum payments.