Too often when people have money problems, they don't do anything about them until the problems are so great they can’t be avoided. Like most problems, the longer they are avoided, the harder they are to solve. A roaring house fire takes tremendous resources to put out. Even when put out, the owner is left with a lot of damage. The spark that started the fire could have been extinguished easily if the situation had been handled earlier.
People frequently live in financial denial; living beyond their means, spending more than they earn, and not tracking where their money is going. They don’t seek financial help until they have hit bottom or are in such a bad financial situation that it is hard to help them. This may happen when they can’t afford to make their monthly payments, their house is in foreclosure, or a vehicle is being repossessed.
If payments are being made on time or if there is a reasonably high income, it may not be as obvious that one is in a danger zone in terms of their debts and bills. It’s easy to fool oneself.
Care needs to be taken when major life events change such as marriage, divorce, baby, job loss, reduced income, medical expenses, or other unexpected expenses occur. People slide into serious debt problems because corresponding spending changes are not made.
Early warning signs are always evident, yet most people are blind to them. With a little education and experience it is possible to recognize early danger signs and know what corrective action can be taken. Below, in no particular order are some of the danger signs.
- Credit card balances have been run up and only minimum payments are being made.
- Credit card balances keep increasing each month.
- Most of credit cards are near the limit and applying for even more credit cards.
- Getting late fees.
- Using credit cards for everyday purchases that used to be paid for with cash.
- Using cash advances.
- Debt starting to interfere with home life and/or job.
- There are frequent arguments about money or talking about money is avoided.
- Hiding purchases from spouse.
- Have taken out or are considering a debt consolidation loan.
- Using pay-day loans, finance companies, and rent to own stores.
- Wondering if filing for bankruptcy might solve financial problems.
- Are unsure how much money is owed.
- Skip paying bills some months, or pay late.
- Have no emergency fund or savings.
- Consumed with thoughts of debts.
- Being contacted by debt collectors.
- Have used money from retirement accounts to pay debts or cover living expenses.
- Are living paycheck to paycheck and loss of job would mean an immediate financial crisis.
- Using balance transfers.
- The new month's bills arrive before last month's have been paid.
- Bills are left unopened.
- Divorced or thinking about divorce.
- Don’t have a system for tracking income and expenses.
- The plan for getting out of debt is some miracle or scheme such as: lottery, business or multilevel marketing scheme, divorce/marriage, insurance settlement, inheritance, lawsuit, etc.
- Mortgage or rent payment is more than 30% of gross income (before taxes & deductions).
- Vehicle is more than 10% of gross income (including financing, repairs and gas).