7 Signs you’re in financial trouble
Posted on 23 jul 2018
Financial trouble is not necessarily characterised by major catastrophic events, like home repossession, it begins way earlier. If your living from pay cheque to pay cheque, it’s inevitable an unexpected life event will occur, like unemployment, and without savings you could be in real trouble. Sometimes it’s the case of not earning enough, more commonly however, you could make better short-term financial decisions that will benefit you in the medium and long-term future.
You have no savings: If you don’t have a rainy-day account, your personal finance game could use some improvement. Having no financial cushion for sudden surprises, like medical issues, may force you to take out a loan to cover your financial obligations, adding interest and fees to an expense you already can’t afford.
What you earn is never enough: A sure sign you’ve developed spending problems is when your income has doubled, tripled or quadrupled over the years, yet your still broke.
You use credit cards to pay your bills: Because you’re not sure what’s in your bank account or using the credit card is easier at the checkout, you have an overreliance on credit. You’re adding to your debt and not living within your means. Debt increases with interest, and money in the bank can easily be spent, creating a false economy for you.
Regularly overdrawn or over limit: You’re not only using credit cards to pay your bills, your topping them out every month! This will attract more fees which is costs you can ill afford.
Consistent loan arrears: No one likes to be in arrears, yet, you cannot seem to avoid it. It’s a constant battle to pay one credit card at the expense of the other credit card, then swap them around the following month, the phone calls and letters increases the pressure on you.
You Avoid opening bank statements: You’ve got a stack of unopened mail in the recycle bin or sitting in your kitchen waiting to be opened. Or, you have gone paperless, and the list of bolded emails have gone unread. You also refuse to answer calls from 1300 or private numbers.
You’re only making the minimum monthly payments: The minimum monthly payments on credit cards and loans aren’t designed to help you quickly pay off your debts. Rather, lenders keep them low in hopes that your balance will last longer and accumulate more interest for them.
Let’s do a little math: Say you owe $20,000 on a credit card with an 18.5% annual interest rate, and your minimum payment each month is $400 (2%) of your balance. If you only make the minimum monthly payments it will take you 54 years to pay off that $20,000 debt. By the time you’re done, you’ll have paid just over $50,000 in interest.
All this points to one question you must ask yourself, do I have a budget I can stick to? A functional budget is the key to getting out of debt and begin building your wealth.
Laurence Hugo is the director of Credit Mediation Service Pty Ltd, negotiation specialist assisting consumer and commercial entities with debt problems. If you feel like you’re over your head and you need guidance with the banks, contact the author: Laurence Hugo 1300 490 030, firstname.lastname@example.org