Financial Warning Signs

Many times we don't see the signs of a financial trouble until it's too late. But a financial crisis doesn't occur overnight. There are many warning signs that may indicate that your financial situation may be getting out of control. Following are a list important warning signs:

• Do you pay only monthly minimums or occasionally miss payments on charge accounts and credit cards? Are your cards nearing or over your available credit limit?
• Do you depend on overtime or multiple jobs to cover monthly bills?
• Do you often borrow from friends and relatives or depend on cash advances to cover basic expenses or pay your credit obligations?
• Do you find it impossible to save money or find yourself exhausting savings as a way of supporting your debts?
• Do you often float or bounce checks, hoping that checks you've written don't clear the bank before payday?
• Can you account for the total amount of debt that you owe? Do you avoid adding up the total of the amount of your outstanding debt or purposely hide credit card bills from family members?
• Are you considering, or have you consolidated debts by borrowing from a high-interest lender?
• Do you panic when faced with an unexpected expense, such as car repairs?

If you find yourself struggling with any or all of the items listed above, you may be living beyond your income, depending on credit, cash advances, or loans to maintain your lifestyle. If you're stretched to the limit financially, you may find that when unexpected expenses arise, you can quickly lose control of your already shaky financial situation.

What you can do

If you or someone you know is facing financial difficulty, there are a number of options to consider. These options can range from the simple solutions, like budgeting, to more involved solutions such as credit counseling or debt consolidation, to the last resort option of bankruptcy. Based on your level of debt, your level of discipline, and your prospects for the future, you'll have to determine which is the best option for you.

• Develop a Budget - Your first step toward improving your financial situation is to realistically assess your income and your expenses. By prioritizing your expenses, identifying those that are necessary and cutting back on the rest, your can start to track and control your spending.
• Contact Your Creditors - Contact your creditors right away if you are having trouble making your payments. Explain the difficulty and try to work out a modified payment plan that reduces your payments to a more manageable level.
• Deal with Debt Collectors - Federal laws, like The Fair Debt Collection Practices Act, dictates how and when a debt collector may contact you. Know your personal rights regarding debt collection.
• Credit Counseling - If you're unable to resolve debt problems on your own, consider contacting a credit counseling service; they can help eliminate much of the stress of dealing with financial problems on your own. These services will help you establish a debt repayment plan and may help you reduce payments with creditors.
• Auto and Home Loans - If you see default approaching with your auto loan, consider selling the car yourself and paying off the debt, thus avoiding the added costs of repossession and a negative entry on your credit report. If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary.
• Debt Consolidation - You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. These loans may add up cost-wise, but may alternatively provide certain tax advantages not available with other kinds of credit. This option requires careful consideration, however, as these loans require your home as collateral.
• Bankruptcy - Personal bankruptcy is usually considered the last resort of debt management because results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, which makes it difficult to acquire credit, buy a home, get life insurance, or sometimes get a job. However, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. You'll probably need to seek financial and/or legal counsel before deciding whether this option is appropriate for your situation.
  

Prevent Future Problems

The best way to deal with debt and other financial problems is to avoid them - prevention is the best cure! Develop positive financial habits and build a good personal credit history by following a few simple rules:

• Pay all your bills on time - This will prove your reliability and ensures that you are a consistent and responsible consumer, not to mention saving the expense of costly late fees.
• If you can afford to, make more than your minimum payments - Paying more than the minimum balance will help you to eliminate the principle debt more quickly. Otherwise you may be paying mostly on interest.
• Keep an eye on your debt - Your creditors assign a credit limit based on your credit history, outstanding indebtedness, and income. If you are at or near your limit it is a good sign that you're headed for trouble.
• Keep an eye on your available credit - Multiple accounts and high credit limits could result in excessive debt in the future.
• Stay informed about your credit - Check your credit report regularly and dispute any inaccuracies.
• Start and maintain your personal savings - Savings are an important way to protect yourself in the event of an unexpected financial situation.
• Be honest with yourself about your financial situation - Only personal effort, prudence, and planning can repair problems and ensure a healthy financial future.
• Create a budget (and follow it!) - Make sure that your style of living and your income are in complete agreement. Regularly analyze your budget and make adjustments as necessary.