Recognizing When Your Debts Are Getting Ahead Of You

April 10, 2009 by Marcel

Sometimes, recognizing that you have a problem is the first step in solving it. That’s definitely true when it comes to spending and saving habits that can lead to increased debt and decreased financial stability.

One of the first signs of financial trouble includes chronic trouble making the minimum payments on credit cards, personal loans, mortgages and other obligations. If you’re unable to make even the minimum payments on your obligations, you need to understand immediately where your money is going. It’s not unusual for people with relatively high incomes to end up with little or no money at the end of the month. Try tracking all of your expenditures for a month. Keep a close tally of late fees, over-limit fees, overdraft fees, and ATM fees. Also keep track of how much you spend on “incidentals” and “minor purchases.” At the end of the month, you may be surprised to find out how much you’re spending in these areas.

Another sign of financial trouble is falling behind on monthly payments. If your mortgage or rent payments are chronically late, or if you skipped one or more payments, you should consider yourself in financial trouble. Providing a living space is a very basic need, and if you’re having trouble paying the mortgage or rent, you probably need immediate assistance with your to finances and debts. Developing a budget may help you see how you’re coming up short.

If you’re using a credit card to pay for necessities each month, you’re either in financial trouble or soon will be. Like housing, providing food, medicine, and utility service for your home is a basic expense that should be covered by your monthly income. If you’ve lost your job or your income has been reduced suddenly, you may need to make drastic changes to your lifestyle to accommodate your new, lower income level. Look at your expenses to see if you can shift you’re spending on necessities to a cash-only basis. Then look to see if you can eliminate some of your credit card spending.

If you’re using credit cards to pay off other credit cards, you may have mounting debt problems. This strategy may resolve an immediate problem, but isn’t sustainable in the long term. If you pay your credit card bills with another credit card, you’re probably living beyond your means and racking up some very expensive interest charges in the process. You need to work on more successful debt relief strategies that resolve your debt problems rather than shifting them from place to place each month.

1 Comment

Investools said

am April 16 2009 @ 10:39 am

It’s really amazing how just the simple act of sitting down and coming up with a budget can put the reality of your financial situation in front of you.

If you don’t know where to start doing this, try this simple process:

1. Spend 1 month writing down everything you spend (down to the penny). Keep it in a spreadsheet if you can and make sure you note the day, amount and what the money went to.

2. After that first month, take a look at your list and highlight the items that have to be paid every month (like rent, car insurance, etc.). Pull those items out and put them into a fixed expenses list.

3. Calculate what you make in a month.

4. Subtract your fixed expenses from your income and that’s your budget.

5. Now the scary part. Look at the items you spent money on last month. Add them up. Are they more than your budget allowed? How did you pay for them (credit probably).

6. You have to cut out what you can’t pay cash for.