President Calvin Coolidge once said “There is no independence quite so important as living within your means.” Unfortunately, debt problems often creep up on people gradually until they get to a point where it is difficult to make even minimum payments on credit cards.
Therefore, it is useful to have a list of “red flags” of debt problems to use as a reference point.
Below is a list of ten common financial stress indicators that debtors often experience:
¨ Dipping into savings to pay debts and/or routine household bills
¨ Having household expenses and/or debts grow faster than income
¨ Taking out new loans before previous loans are repaid
¨ Charging more each month than the amount made in debt repayments
¨ “Juggling” the payment of bills from month to month
¨ Using a checking account overdraft or credit card cash advance to pay expenses’
¨ Having late fees assessed on loan and credit card payments
¨ Using credit for items that used to be purchased with cash
¨ Having a consumer debt-to- income ratio (total of monthly consumer debt payments divided by monthly take-home pay) of 20% or above
¨ Having negative information (e.g., late payments, judgments, and collections) in a credit report
If one or more of the above situations are happening to you, reach out for help. Contact creditors to request payment concessions or a non-profit credit-counseling agency that can help you draft a “livable” budget and negotiate with creditors on your behalf.
Most importantly, do not try to “borrow your way out of debt;” it simply cannot be done. In addition, do not ignore a growing debt problem and the ten financial stress indicators listed above. Like untreated cancer, debt problems will only continue to get worse and take over your life.