Money Smarts

10 Signs You’re Headed into Financial Trouble and What to Do About It

The first step in preventing a financial meltdown is to increase your awareness of where you are today.

My friend had a stable job making $85,000 a year with moderate debt that included a mixture of credit cards and student loans. He lived a comfortable lifestyle often eating at fine restaurants and traveling. He shared that has all changed.

My friend who was never late on bill payments was now facing some financial issues. He shared his stress from the creditors’ phone calls. “It came out of nowhere,” he states, ” I thought I was managing my money very well.”

For many people making $85,000 a year would be a financial windfall but my friend was living paycheck-to-paycheck. My friend believed he would always make more money. He was ill-prepared for the unexpected that one traffic ticket would send him off to the financial abyss. I share his story in more detail in my national bestselling book, You Only Live Once.

There are many of us at one point in our lives that are headed to or have gone through a financial meltdown. My friend never saw the red flags during those blissful years of “financial indulgence.”

Here are ten financial warning signs that might indicate you are headed for financial trouble:

1.  You associate savings with purchases and not with a savings account.

Buying things at a discount is good but not saving money for short, mid and long-term goals can mean disaster. Start an emergency fund to cover unexpected expenses.

2. You don’t know how much debt you have.

The biggest hurdle preventing many from achieving financial freedom is not knowing the total amount of debt owed. Get your free credit report and analyze your outstanding debt and credit available.

3. You have credit cards that are near or above the limit.

You make the minimum payment in order to charge on the credit card’s new available balance.

4. You make late payments on bills or paid a checking or debit card overdraft fee.

This is an early sign you may be losing control of your money. Consider using a banking alternative with little to no fees.

5. You carry a revolving balance on your credit cards.

Having balances on credit cards month-to-month can lower your credit score. Thirty-percent of your credit score is derived from your credit usage (the ratio of used credit to available credit). Consider refinancing your credit card balances and save.

6. You use credit card checks or cash advances to pay your bills.

These credit card features cost money from extra fees or higher interest charges. It may seem convenient but can add to your debt load.

7. You were turned down for a credit card or loan.

This may be an indication that lenders find you a high-risk borrower. This often shows you have overextended yourself. Credit scores are used to determine your creditworthiness to determine the potential risk of default or bankruptcy in a few year. Know your credit score and monitor your credit report.

8. You borrow money from your 401(k) to pay for monthly expenses.

Your 401(k) is part of your long-term savings strategy used for retirement. It’s not mean to be used to pay for debt or recurring monthly expenses. A 401(k) loan or withdrawal can mean penalties, fees, and impact your financial returns.

9. You believe the lottery is your path to retirement.

You have a higher chance of being struck by lightning than winning the lottery. Your retirement should include a robust savings and investing plan that includes 401(k) contributions, IRAs, brokerage accounts, and life insurance. Start investing your change on purchases and wet your toes.

10. You hide your financial situation from your partner.

Money can erode the strongest bonds among partners causing arguments and divorce. Lying about your spending habits and hiding bill statements will cause more grief down the road.

If you find yourself agreeing to a few of these, it might be time to sit down and assess your financial situation completely.

In order to create a solution, you’ll need to acknowledge your actual situation. You can begin by getting your free credit report from AnnualCreditReport.com, learn what your credit score is by using free services like CreditSesame. Then, start the budgeting process that will help you uncover how and where you are spending your money.

There is a solution for every financial situation. It’s just a matter of knowing the specifics of your finances. When you gain a better understanding of your financial picture, you can then create a plan to take control.

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Jason Vitug

Jason Vitug is founder at phroogal, creator of the award-winning project the Road to Financial Wellness, and author of the bestseller and NY Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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5 thoughts on “10 Signs You’re Headed into Financial Trouble and What to Do About It”

  1. Yes, I remember when I got a frisbee for $10k. I was at school campus and they were giving away frisbees and I wanted one. So I signed on the dotted line.

  2. There is nothing more stressful in life than having money problems. It effects your health, happiness, and peace of mind. Having been a mom of six, and raising them on my own, I have been so far down and out that nothing was going to help. I have managed for the last ten years to keep a roof over my children’s head and scrape by on a wing and a prayer. I have written an e-book for people that don’t just need to “buckle down” and put away some money or “cash in their IRA”. This is down and dirty advice for how to keep the lights on and put food on the table. It can be found on the Amazon Kindle website and is titled “Real World Advice For Dire Financial Hardship” by Marianne Davis.

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