A fire-breathing debt monster causing nightmares is a sure sign of financial trouble. But not all distress is so pronounced. Danger lurks, even in more quiet environments. There are indicators that you could be in over your head, with or without the sleepless nights or upset stomach.
Among the most disconcerting behaviors is denial. Flipping quickly through the pages of bad book is a lot easier than trudging through one bad line after another.
“Not sitting down and adding up what you owe is a dangerous sign,” said Alan McKnight, an Atlanta-based certified financial planner with Kays Financial Advisory Corporation. “A lot of people think they can out-run it. They say, ‘If I can just make a little more, I’ll fix it.’ The problem, with credit especially, is that it can overwhelm you. It’s almost impossible to out-run it.”
It’s not impossible to turn things around, though. McKnight said the first step is paying close attention to your money-related habits. Here are at least seven danger signs:
1. If you’re using credit cards and making only minimum payments, watch out. Using credit cards is not necessarily problematic. In fact, not ever using the cards can actually damage your credit score. However, if you’re using cards out of necessity and making no more than minimum payments, you could be on a slippery slope.
2. If you do not know how much you owe, you could be fooling yourself. While many consumers know exactly what they earn, they don’t know exactly how much they spend each month. Credit payments and loans (excluding mortgages) should not exceed 20 percent of your take-home pay. Mortgages should not exceed 28-30 percent of your gross monthly pay.
3. The amount of interest paid on your card exceeds the principal. Michael J. Smith, a member of the board of directors for the Financial Planners Association, said that is a scenario he has seen many times. “With interest payments of 21 to 25 percent, it doesn’t take long for them to really add up,” Smith said.
4. If you’re paying all of your bills, but you’re unable to save anything, you’re in trouble. Not having some sort of emergency fund exposes you to potential trouble.
5. If your bills are paid, but they are paid late, you’re not secure. Just because utilities and services are not yet disconnected, teetering the line is not only a bad habit, but an indication of a bigger problem.
6. If you’re using a cash advance from one credit card to pay another credit card, or constantly borrowing money to pay bills, you’re in over your head. “Cash advances carry a high interest rate, higher than purchases,” Smith said.
7. If you’re getting phone calls from credit card companies, you know your back is against the wall. When those calls are coming from collection agencies, your problem has become too much.
“Most people can probably pull out of it if they are willing to be disciplined enough to change their ways,” McKnight said. “If you’re not willing to do that, it’s going to get worse.”