“How in the world did I get here?” Many people think that financial trouble happens overnight.
There’s nothing farther from the truth. Just like success, being in a serious financial problem is a process. It starts with poor financial habits which then escalates into serious troubles. Unfortunately, many people fail to read the little signs that they’re headed to financial disaster. That’s why we’re going to explore 7 signs of financial distress.
#1 Credit Card is Your Go-to To pay Bills
One of the biggest signs you have money problems is if you’re using your credit cards to cover your monthly expenses like rent or utilities. When this happens, it means that you’re constantly running out of money before payday. Living paycheck to paycheck might not seem like a big deal at first, but your credit card debt begins to pile up. The interest rate only means you’re going to pay even dearly for it.
Solution: Resist the urge to use your credit cards.
As a rule of thumb, you should never use your credit cards to cover your necessities. Instead, try paying with cash so you can be aware of how much you truly have and how much you’re spending. This can be hard to adopt but it will save you from financial ruins.
#2 You Have Zero Savings
After paying all your bills for the month, if you have nothing left in your account, that’s an open invitation for personal disaster. What happens if you lose your job or if an emergency arises? It’s until that happens before many people realize that they’ve been living on the brink of financial ruins.
Solution: Develop a Budget and Save
Many people spend more than they make because they don’t have a budget. With a budget, you get to cut off unnecessary expenses and even carve out money for each month to put into saving. It is recommended that you save, at least, 20 percent of your monthly income.
#3 There’s Nothing Else To Cut
If after you’ve squeezed your budget – you’re already doing without cable, you’ve cut your gym membership, you never eat out – and you still cannot make ends meet, then it’s indicative of serious financial trouble.
Solution: Set up a bare-bones budget and Earn More.
A bare-bones budget is a budget that covers only the necessities like mortgage or rent, heat, power, water, and food. Unless you need the Internet to work, you might have to take advantage of Free WiFi at the library. Such draconian measures might be needed if you lose your job or take a cut in pay. This is usually a short-term strategy that will get through the rough patches.
#4 You’re Paying Off One debt With Another
If you do transfer a credit card balance to another card or you’re always tempted by balance transfer offers, or you’re paying your mortgage, car, or student loan debt with a credit card, you might be headed for financial trouble.
Although balance transfers can be beneficial in some instances, credit card abuse and indiscipline to pay debts are detrimental. It will cost you hundreds of dollars in fees and add to your debt.
Solution: Organize Your Debt
Debt organization helps you pay off your debt in the most efficient manner. Put your fixed loan payments on autopay. Organize your debt in a way that will allow you to pay the least in interest. Furthermore, avoid paying extra consolidation or balance transfer fees. If possible, call your creditors to see if your debt can be restructured to lower the rate. Most creditors are usually willing to help out, as long as you continue to make your monthly payments.
#5 You Keep Borrowing Money From Family and Friends
It’s nice to have people that’s got your back when you’re in need. But when it becomes excessive, you become a burden. Relying on family and friends to pay your bills means you’re far from financial security and freedom. Failure to pay back debts when due can strain the relationship you have with people you care about.
Solution: Gain Your Financial Independence
Part of growing up is being fully responsible for your finances. Rather than borrowing from family and friends, have them guide on your financial independence. Have them check up on you regularly to ensure that you stay right on track. While you might make some financial mistakes along the way, it’s part of the journey towards making better money decisions.
#6 You’re Constantly Worried About Money
At some point in our lives, we’ve all had to worry about a debt hanging over our heads. It’s just a terrible experience; the sleepless nights, migraines, depression, and emotional toils. However, if this is the situation you’re always in, then you’re in a deep financial mess. You’re probably not making enough and you have to turn your situation around.
Solution: Stop panicking: It’s not going to solve anything
Instead of worrying, uncover the reasons you never have enough, and create a suitable plan. Restructure your budget, create an emergency fund. If you’re not making enough, looks for multiple income streams or develop your professional skills so that you can earn more. Keeping a clear head will help you assess your situation accordingly.
#7 You’re Considering Bankruptcy
Declaring bankruptcy is usually the last resort for people with no hope of repaying their debts. If you find that you may be at that point, then know you’re in financial trouble.
Solution: Seek Professional Advice
Before you pull the trigger, speak to a credit counselor to see if there are other alternatives. The reason declaring bankruptcy should be avoided is that you may lose your non-exempt assets, it may negatively impact your credit score, and hurt you for many years down the line. If bankruptcy is the best option available, then see it as a way to get a ‘fresh start’ on your finances, after which you can start rebuilding.
There are a plethora of other signs to tell if you’re in financial trouble. Some of them include:
- Making only minimum monthly payments
- Defaulting on payments
- Having unpaid taxes
- Ignoring your financial statements
- You don’t think twice about adding more debt
Don’t let financial trouble cover you up before you reach out for help. Contact us today.