Warning Signs of Financial Trouble

One of the biggest hurdles you might face before deciding to explore a debt relief program is acknowledging that there’s even a problem. Denial is a strong force that can keep you from making improvements to your financial situation. But you deserve that help. 

It's easy to see why you may be inclined to ignore financial warning signs. Being overloaded with debt is stressful. And if the reason you are is due to circumstances outside your control, thinking about your debt—and your finances in general—could stir up some bad feelings.

But the sooner you recognize that you're in trouble financially, the more likely you may be to address the problem before it becomes a full-blown crisis. Seeking help with your debt means you're taking control of a situation before it spirals. 

If you’re wondering if your finances (or those of someone you care about) could be in better shape, or if it’s time to seek out debt relief, here are 10 financial warning signs to watch for.

1. You’re Only Paying the Minimum Amount Due on Your Credit Cards (or Less)

When you only make minimum payments on your credit cards, you’re technically fulfilling your obligation to your credit card issuers. But you risk paying far more in interest than the items you purchased originally cost when you don’t pay more than your minimum amounts owed each month. Plus, only paying your minimums puts you at risk of accumulating a large balance, which could cause damage to your credit score.

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2. You Shuffle Debt Around From Credit Card to Credit Card

If you tend to move money around from one credit card to the next, you’re probably not making headway in paying off your debt. While balance transfer cards, if used strategically, could help you reduce your debt, debt shuffling is not the same thing as paying down your balances. If you’re shuffling debt just to stay afloat, it’s a sign that you may need credit card debt relief.

3. You’re Near the Credit Limit on Each of Your Credit Cards

When you have high credit card balances relative to your total credit limit, it decreases your purchasing power and lowers your credit score. Your credit card balances should be kept as low as possible, for the sake of your credit score and your wallet. Getting close to maxing out credit cards is one of the biggest financial warning signs to keep on your radar.

4. You Charge More Each Month Than You Make in Payments

If you’re charging more on your credit cards than you’re making in payments each month, it’s a clear financial warning sign, since it means you’re adding to your debt rather than getting ahead of it. It’s important to create a budget that helps you manage your spending so you’re able to make credit card payments on time and in full. A budget could help you identify expenses to cut back on so you’re able to start charging less and paying more of your existing balances.

5. You Receive Frequent Phone Calls or Emails About Delinquent Bills

When your phone is ringing constantly with calls from creditors, or your inbox keeps blowing up with emails asking you to repay overdue debts, it’s a sign that you may be in over your head. Once you’ve gotten to this point, it may be time to seek out debt relief. Debt consolidation could be your best bet when you’re juggling multiple credit card balances and you don’t know which one to pay off first. 

6. You Use Credit Cards Because You Don’t Have Money

There may be times when it becomes nearly impossible to avoid using your credit cards, like if you’ve lost your job or are dealing with a series of unexpected expenses. But one of the biggest financial warning signs is frequently using your credit cards in the place of having the money to pay your bills. 

If this keeps happening, it may be that you need to make some adjustments to your spending. And if you don’t have expenses you can reasonably or comfortably reduce, try boosting your income with a second job instead of getting deeper into credit card debt. 

7. You’re Dipping Into Your Savings to Pay Your Monthly Bills

If you have savings to fall back on, you’re in better shape than a lot of other people. But while it’s a good thing to have an emergency fund, that money should be reserved for unplanned expenses, like sudden home repairs or losing your job. If you’re regularly dipping into your savings to pay your regular monthly bills, consider it a financial warning sign and aim to make a change. That could mean reducing your spending or trying to boost your income with a side job.

8. You’re Afraid to Tell People About Your Debt

If you’re struggling with debt, you’re most likely in good company. You may even have friends, family members, or colleagues who are in a similar position. But if you’re too embarrassed to talk about your debt, you may be less likely to seek help for it. 

Instead, confide in the people you trust and see if anyone has recommendations for digging out of that hole. And don’t let a fear of being judged stop you from getting debt relief. There are professionals who handle situations like this all the time, and they’re happy to help.

9. You Sign Up for Every Credit Card Offer You Get

If your credit score is in decent shape, you may find yourself getting bombarded with credit card offers that look enticing. Some of these cards offer seemingly amazingly perks like large sign-up bonuses and extra cash back on everyday purchases. But you should know that each time you apply for a new credit card, you undergo a hard credit inquiry, which could damage your credit score. And the more credit cards you have and rely on, the more you risk adding to your debt. 

10. You Worry Constantly About Your Next Paycheck 

Do you typically find yourself counting the days until your next paycheck arrives so you can cover your expenses? With help, you can stop living paycheck to paycheck and start managing your bills more comfortably. So if you don’t have a savings cushion to fall back on, and you can’t start building savings because your paycheck is monopolized by debt payments, don’t hesitate to explore your options for relief.

Early Warning Signs vs. Crisis Indicators

There's a big difference between not having the best handle on your debt and finances versus reaching the point where you have a financial crisis on your hands.

If you're only paying your credit card minimums but are managing those well, and your savings account has a little bit of money in it, it means you need to be vigilant but aren't necessarily in deep trouble. Set a budget to stick to and track your spending and bills carefully to hopefully whittle down those credit card balances over time.

Meanwhile, if you've recently been late on a debt payment or two, but you're mostly on top of your bills, you're perhaps not yet dealing with a crisis. Some careful budgeting and a meaningful reduction in spending could get you back on track.

On the other hand, if you have no savings, you're consistently late with all of your debt payments, and you're losing sleep at night because you're so stressed about your financial situation, you've landed in crisis mode. And that's not something to be ashamed of. What it means, though, is that it's time to seek help so your financial situation doesn't get worse. 

Hidden Warning Signs Many People Miss

Recognizing the early signs of financial trouble could help you avoid a full-blown crisis. But it's also important to be on the lookout for the hidden warning signs people tend to miss.

If your bills are consistently increasing and your income isn't, it's a sign that you may be headed for financial trouble—even if you're not there yet. You may be able to cover those higher costs for the time being. 

But if that pattern continues, you may reach a point where instead of paying your bills on time every month, you're suddenly late on one or two because you don't have the money. And over time, a couple of late payments could turn into consistently late payments. 

Another hidden warning sign is that you're putting off reviewing your finances because you suspect you're not going to like what you see. That could mean delaying the process of creating a budget or postponing the meeting you keep meaning to schedule with a financial planner—things that could be helpful to your finances, not harmful.

Finally, if you're making financial decisions based on hope rather than current reality, you may be headed down a path you don't want to be on. 

For example, if you need to replace your car and are trying to figure out how large of a monthly auto loan payment you can afford, you may be inclined to tell yourself you'll be able to afford $400 a month once you get a handle on things. But if you can't afford those $400 monthly payments today, then it’s best not to be signing that loan today.

How to Get Out of Financial Trouble

The first step in getting out of financial trouble is admitting that you're in trouble in the first place. From there, you can figure out a game plan.

Start by making a list of your various debts and what they cost you each month. From there, take a look at your checking account and paycheck and see if those debts are payable. If you get caught up on your debts by reducing your spending, working a second job temporarily, or both, then you may be able to get yourself to a better place using those methods.

Another option that may work for you is debt consolidation. This allows you to roll all of your debts into a single monthly payment so your debt is less overwhelming.

However, if your personal financial assessment reveals that there's simply no way to cover all of your debts, and that you're only going to continue maxing out credit cards, being late with debt payments, or skipping them altogether, then it may be time to seek professional help. 

A debt relief company can review your financial situation and walk you through some options for next steps. One option may be debt settlement, which is negotiating with your creditors to accept less than the full amount you owe (and forgive the rest). From there, you could get onto a payment plan that eventually leaves you debt-free. 

Another option that may be worth considering is filing for bankruptcy if you feel that you’re in over your head and you need legal protection from creditors. Some people view bankruptcy as a last resort. But in reality, it could be an effective solution that allows you to walk away from some or all of your debts and rebuild your finances. 

In many cases, a Chapter 7 liquidation bankruptcy may be preferable to debt settlement. However, there are income limits you’ll need to meet. If you don’t qualify for Chapter 7, debt settlement may be preferable to Chapter 13 bankruptcy, which reorganizes your debts but still has you paying them off. 

When to consider professional debt relief

It can be tricky to figure out when you need professional debt relief versus when you're equipped to handle your debt on your own. Some debt relief companies offer a free initial consultation to let you know if you're a good candidate.

You may be a good candidate for debt settlement if you're:

• Significantly behind on your debt payments

• Overwhelmed by the amount of debt you have

• In a position where you can afford some type of monthly payment that's less than what you're on the hook for now

It especially pays to explore your options for debt relief if you've experienced a recent financial or personal hardship that's making it harder to keep up with your debt. For example, if you've lost your job, are only able to work part-time because you're caring for a sick loved one, or you're recovering from an injury or illness, any of these might be a reason to look into debt relief. 

While you don't automatically need a professional debt relief company to settle your debt, trying to negotiate yourself may be difficult and stressful. A debt relief professional, on the other hand, may have the experience and knowledge to negotiate a more favorable outcome.

At Freedom Debt Relief, our Certified Debt Consultants can help you determine how to chart a better financial future and walk you through your options for managing debt. Find out if you qualify so you can improve your financial picture as soon as possible.

Building Financial Resilience After Crisis

If you've come to the realization that you're in financial trouble, addressing the problem could put you on a path to a more financially stable future. Once you've taken the appropriate step to address your debt, whether it's professional debt settlement, consolidation, or something else, the next step is setting yourself up to become financially resilient. Here's how.

Create an emergency fund

Build an emergency fund over time so you're able to cover unplanned expenses without having to take on new debt automatically. A $1,000 emergency fund is a good goal to work toward. Once you reach it, try saving up enough money to pay for three months of essential bills. That way, if you end up out of a job, you'll have savings to cover your expenses without needing to charge them on a credit card.

Stick to a budget

Tracking your spending carefully is a great way to stay out of debt on a long-term basis. Figure out a budgeting method that works for you, whether it's using a spreadsheet, keeping a paper budget, or using a budgeting app.

Live below your means

Make sure the expenses you commit to do not eat up your entire paycheck. If they do, there won't be any wiggle room for when your bills rise, or when a surprise expense comes up.