Debt is insidious by nature as it seems to creep up on people. One day you are scraping along, then suddenly you debt has reached unsustainable levels and you are in serious financial trouble. This article will take a look at seven early warning signs that you may have a growing debt problem. By catching the problem early you will find it much easier to get back on track financially!
It’s very easy to get into debt in the United States, with easy access to credit cards and store cards anyone can wrack up thousands of debt in a few weeks. Many people think they are fine then a number of bills arrive simultaneously and they realize they simply can’t manage them and before they know it they are in a debt spiral, unable to service what they owe.
The warning signs of a debt problem:
1) You start paying your essential bills with a credit card
It’s ok to pay your bills with a credit card if you pay off the debt within a few weeks with money from a savings account. But if you are relying upon the credit card to pay utilities bills and food bills and are unable to pay off the credit card within a few weeks, you have a growing problem.
2) Your total credit card debt is more than 15% of your gross income
If you earn $40’000 per year and have $6000 in credit card debt, that is a warning sign that your spending may be out of control and a debt problem is growing. This is different from mortgage debt which is tied to an asset.
3) You can only afford the minimum monthly payments
If you have multiple credit cards and get to the stage where you can only afford to pay the minimum monthly amount, you have a debt problem growing. Credit cards are meant to be a short term financial tool that can help you purchase items conveniently. They shouldn’t be used like a long term loan because the interest rates and penalties are obscenely high.
4) You don’t have any savings
If you don’t have an emergency fund or a savings fund you are probably headed for financial disaster. Regardless of how much money you earn, you should have two funds set aside.
The first is an emergency fund of about 20-40% of your annual earnings. That fund is there to help with unexpected emergencies like your car’s engine dying, an emergency trip to hospital or losing your job suddenly. It should be enough money to cover your living expenses for 6 months.
The other fund is a long term savings fund which is used for bigger purchases and general financial stability. That is there to help save for your first home, or buy a new car, or some other long term financial goal. If you don’t have any savings, this is a warning sign that your finances are not in order!
5) You run out of money between pay checks
If you have issues getting through to the next pay day, you should take a hard look at your expenses and try to find ways to save money. You could also look at a better paying job or a second job.
6) Carrying three or more credit cards
If you are carrying many credit cards and swapping money between them, a debt problem is building and will soon hit you very hard. Simply cut some of the cards up and pay the balances off.
7) You often receive overdue notices
If you pay off most bills after receiving an overdue notice, you may have financial problem looming and now is the time to act.
Remember the sooner you act on financial problems, the easier it will be to neutralize them. Take stock of your finances today and take action!