Many people think of themselves as having debt problems when they can’t easily afford to pay their obligations – if they can pay them at all. That does make sense. However, the problems really begin before that. With that in mind, here are key warning signs of impending debt problems – and what you can do about them.
You’re Only Paying the Minimum
Financial institutions don’t care if you only make the minimum payment allowed. Why? Because they rack up the dough in the interest you pay. Meanwhile, if you make paying the minimum a habit, you’ll begin to dig a hole for yourself that may take decades to emerge from, especially if the payments involve credit cards, which carry higher rates compared to many other loans. If making minimum payments is all you can handle these days, you may want to try to find extra income.
Debt Collection is Involved
This is a serious (and stressful) warning sign that you’re about to be in trouble deep if you don’t find a way to pay up. Yes, you’re already in trouble by this point, but if you can erase this debt before it takes over your life – think garnishment or repossession — pursue it post haste. A debt counselor can likely help you come up with a solution.
You’re Turning to Solutions Too Often
If you’re taking advantage of balance transfer card or home refi opportunities too often, yes, you have a looming problem, and those wells will run dry at some point. Before assuming new debt to clear existing obligations, be sure you have your spending under control. Something is causing you to return to indebtedness, and you must address it.
You Keep Getting Cash Advances
If you can help it, you never want to use a credit card for a cash advance; the terms and charges are prohibitive. For example, a cash advance of $1,000 will likely cost you a one-time fee of $50, in addition to interest for any outstanding balances. Further, credit reporting agencies generally see such actions as a negative reflection on your finances. It’s a bad sign if you’re using advances for monthly bills and expenses.
Make sure you have an emergency fund of at least $1,000 so that you don’t need an advance for life’s unexpected occurrences. If you already have debt woes, check out Achieve’s financial solutions.
You’re Getting Turned Down for Loans or Credit
It may not have happened overnight, but suddenly you’re being rejected for loans or credit cards. Or you’re not getting the offer or limit amounts that you were expecting, since you’d gotten at least those amounts before. Well, perhaps the lender or credit card issuer sees what you don’t: a diminishment in your creditworthiness or your ability to repay. In short, your risk status has increased. What you must now do is cease with the applications and take a hard look at your circumstances. Go over your credit reports and make certain there are no errors. Then work to improve your scoring.
Your Savings Aren’t Growing
You’re supposed to be paying yourself first – every month. If you aren’t, you’re likely spending too much or not making enough. You likely have a debt problem if you don’t have enough cash left over to put away after paying bills, or your savings are decreasing because you’re dipping into them. One remedial approach involves upping the amount you’re saving each month from 5% of your income to 10% — and budgeting so that you know where your money is going.
You’re Maxing Out Your Credit Cards
If you’re the type to put something affordable on your credit card then pay it off asap, you’re probably fine. But you’re about to have serious debt problems if you max out a card or come close to doing so. If this is you, stop using your plastic until you’re down to a balance you can handle. After all, it’s important to have a good debt-to-income ratio, which is the percentage of your gross monthly earnings that goes toward debt payments. Generally, lenders like to see a DTI of no more than 36%.
Whether you’re generally aware of some of the key warning signs of impending debt problems, or your head has been stuck in the proverbial sand, it’s time to come to grips with your issues before you’re in so much trouble that your life’s been taken over. If you’re already there, you may need to seek out debt resolution. For that, we recommend Achieve.
Also Read: How To Finance Your Business During Increasing Interest Rates
