Financial struggles can affect anyone. No matter your career, income, lifestyle or preparation, something can come along and threaten everything you have worked for. Whether a debilitating injury or illness, the death of a family member, a natural disaster or a worsening economy, there are dozens of life events that that can weaken financial security. The signs of a deteriorating financial position are sometimes difficult to catch in time to make a difference. Denial can play a role but in many cases, causing financial instability to accelerate to a dangerous height before the reality of the situation becomes clear. By this point, for many families, the damage is done. It’s too late. Rather than realizing you’re in trouble once too much time has passed, here are some warning signs and red flags you should watch out for.
1. You have no savings account.
In the current economy, living paycheck to paycheck is altogether too common. While some families have no other choice, if you once had excess cash and find yourself scraping the bottom of the barrel each month, something is probably wrong. Your savings are there to help in bad situations, not as a flexible spending account. Do your best to keep it that way.
2. You carry a balance on your credit card
Not only is it bad for your credit score but carrying a balance will also end up costing you more in interest payments and fees than you paid in the first place. Carrying a balance indicates that you spend more than you make, a bad combination for financial stability.
3. You are consistently close to your credit limit
While it may seem random, credit limits are determined by factors such as your credit score, your credit history, your income, your average purchases, and your payment amounts and schedules. The limit imposed on your should be fairly reasonable based on a creditor’s assessment of your liquidity. If you are regularly maxing out your cards, something is wrong, especially if you’re not paying the full balance back.
4. You are making late payments
Missing or forgetting a bill’s due date every now and then is understandable. People make mistakes. Regularly making late payments or missing payments is not. If you cannot afford your bills, your spending is too high for your income. Additionally, you are likely paying higher rates due to fees and interest, making this vicious cycle a costly one.
5. You are using payday advances to cover expenses
This is one of the biggest red flags possible. Needing a short term loan every now and then is okay. Using them regularly is a sign that you don’t have enough money to pay your bills. Furthermore, payday advances often carry interest rates of 300% to 600%, meaning that the costs are not worth the small benefit.
6. You have excessive debt
A little debt is necessary: student loans, car loans, and mortgages are totally understandable and, to a degree, expected. A second mortgage, piles of credit card debt and personal loans with no explanation are not. Borrowing money increases the costs of your purchases and makes it harder to pay down your debt. If you find yourself thinking about looking into additional financing for personal expenses, you are probably spending money in unnecessary places.
7. You are considering drastic measures like playing the lottery or the stock market
There is nothing wrong with holding stocks as investments or buying a lottery ticket every now and then. When you begin to consider these as viable options to sustain yourself, however, something is wrong. Your chances of winning the lottery are slim to none and playing the markets successfully takes a substantial background in finance. If you’re seeking roundabouts, you may be in trouble.
8. You overdraft your accounts
Everyone makes mistakes but if there is so little money available to you that you are consistently paying fees for spending money you don’t have, you likely aren’t very financially stable. In order to save on fees, decline overdraft protection. You won’t be able to spend past your balance but you also won’t have to pay hefty fees every time you overdraft.
9. You were denied a credit card or loan
When a creditor denies you a card or a loan, something is wrong. Someone financially stable with good credit should have no problem securing a card or a loan, even if the limit or interest rates aren’t ideal. If your credit has slid so low that you can no longer obtain a line of credit, you have done lasting damage to your credit and your financial position. This is a strong warning sign.
10. You hide your financial situation from your partner or financial advisors
If you are embarrassed about your finances or are trying to shield others from the reality of your situation, you are already aware of the problem. Once you have reached this point, you need to change your habits or seek help.
Many things can hurt your finances and it is far easier to let your situation fall apart than to put it back together. If you notice any of these occurrences or habits in your daily life, it may be cause for concern. Consider cutting your spending and reevaluating your priorities in order to get to the root of the problem. Financial problems are frustrating and potentially dangerous. By keeping an eye out for these red flags, you catch the beginnings of financial instability early, before things get too ugly.
