Unless you’re a little neurotic, you’ve probably lost track with your finances at least once in the past 10 years. And after you’ve gotten off the track, you probably have very high intentions to never let this happen again. It’s important for you to recognize the signs before you get into trouble with debt. It’s much harder to back track than to just avoid the situation all together.
- Not paying your bills on time. You may be headed for trouble with debt if you are unable to pay your bills on time. This damages your credit score and will then make you pay more in interest rates. Be careful, if your credit score is below 580 you pay be forced to pay more for auto insurance, your rent, and your utilities.
- Struggling to just make the minimum payments. The minimum payments on your credit cards refers to the minimum that you can pay per month to avoid being charged with late fees. You will be headed towards trouble with debt if you can’t make the minimum payments for your credit cards. Also, it will take you much longer to get out of debt. Now you have higher interest rates and you’ll have to pay for a longer period of time.
- Using other credit cards to make payments. This is one of the biggest signs that you’re in trouble with debt. If you do this, you’re just piling debt on top of debt. The only good thing you can do with this is transferring your balances to a 0% interest balance transfer card. All of your monthly payments should go towards reducing your balance instead of paying interest.
- Taking cash advances. This is a serious problem and at this point, you’re probably already in trouble with debt. Taking cash advances on a credit card is probably costing you big money. People tend to forget about interest rates. Nearly all card companies charge a much higher interest rate on cash advances. Next time you get your statement, check the interest. Cash advances typically have an interest rate that is at least 10% higher than what they charge for purchases.
- Being refused for credit. The number one reason people get rejected for credit is because they have low credit score. If you have low credit score and a credit report filled with either missed or late payments, the lender will see that you are at a very great risk for represent. If you’re being refused for credit it is because the lender believes that you won’t be able to pay back the money they’re lending you. This is a very dangerous red flag that warns that you are in trouble with debt.
- Earning less than you spend. If you don’t track your finances, you likely don’t even know that you’re spending more than you earn. If you are going deeper and deeper into debt, it’s likely because you’re spending more than you earn. If you don’t even know how to check, it is done by dividing your fixed monthly debts by your earnings. If you have a percentage of 40% or higher, you’re heading into trouble with debt.
- Reaching or going beyond your credit card limits. 30% of your credit score is found by the amount you currently owe. If you reach the limit or even exceed it, you’ll likely be denied other lines of credit.
- Taking money out of your savings or retirement. When you take money out of your retirement account, you lose the returns that you would have earned had you left the money alone. When you take money out of savings, you will have less available in case you run into a financial emergency. Many financial counselors believe that you should have the equivalence of 3 months of living expenses in your savings account to protect yourself in case of emergencies. When you take money out of your savings account, you put yourself at risk of running into an emergency.
- Continually paying late fees. If you are always paying late fees, you’re either not doing a good job of managing your money, or you’re just lazy. If you’re late on just one payment, your credit score can go down by as many as 50 points. This one late payment could even drop your good credit to bad credit.
- Juggling bills. This may help you short term, but not over any time. If you’re shuffling bills to make at least the minimum payments on the latest ones, you’re only paying off the inevitable. This will damage your credit score and will inevitably end up costing you money.
If you only notice one of these warning signs, you’re probably not headed into trouble with debt. But if you begin to see three or more of these danger signs, you’ll need to buckle down and get your finances under control.