Seeing the warning signs on the horizon can help you prepare mentally and maybe even prompt you to make some important financial changes before it’s too late.
Relying Too Much on Credit Cards
Ideally, you shouldn’t use more than 30 to 40 percent of your credit line. Credit cards that are constantly maxed out are a top warning sign. You should also take a closer look at your finances if you’re charging groceries, utility bills and other monthly expenses to your card. In addition to having some open credit in case of emergencies, you’ll also lower interest expenses and save money in the long run. If you find that you’re putting daily costs on the charge card, then you should look for ways to lower other expenses and get your finances under control.
There is No Emergency Fund
What will you do when there’s an emergency? Car repairs that come up unexpectedly and other little emergencies won’t leave you scrambling when you have a little cushion in a savings account. Your minimum emergency fund should be $1,000. Whenever you have a little extra money, put it into this fund to cover those little situations that sometimes come up.
You’re Only Paying the Minimum
Do you look at your minimum due every month and pay only that amount? This is a warning sign that you’re overextended and close to financial disaster. Paying only the minimum on credit cards leads to higher charges and more interest expenses. It’s also a warning sign that you really cannot afford your current lifestyle.
Turning to Home Equity Loans
If you’ve got equity in your home, then you’re very fortunate. It’s tempting to use home equity to pay off credit cards or make other purchases, but this can cause you to lose your home if you ever fall behind. Home equity loans should only be used for improvements, and you should make sure that you can cover the payments comfortably before making that commitment. If you aren’t completely sure you can cover the payments, don’t take out the loan.
Past the Point of No Return
Seeing the warning signs can save you from bankruptcy, but it’s not always possible to take action in time. Job losses, medical bills and unexpected serious emergencies can leave you in a dire financial position, and bankruptcy may be your only option. You could be facing imminent bankruptcy if your monthly debts exceed income, you’re living off credit cards, or you’re facing collections and wage garnishments. In these situations, it’s important to meet with professionals like Faber Inc. to review your options and see if bankruptcy can help you, or if you still have other options available.
In most cases, people can look back and see the warning signs that bankruptcy was imminent. However, it’s far better to see the warning signs ahead of time. Even if you’re unable to make financial changes without bankruptcy, you can still take this step more quickly and avoid a great deal of frustration.
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