If you’re financially unstable, it may be hard to see, but there are a few signs you should look for. Then you can take action and become financially stable again.
Business coach Rhondalynn Korolak says one of the earliest signs of commercial illness is that your business’s bank balance is shrinking, instead of growing. This is a sign that your income isn’t being properly matched by your expenses, and it could lead to insolvency.
1. You’re Maxing Out Your Credit Cards
A maxed-out credit card is a sign of financial trouble. It can have a number of consequences, including negative impact on your credit score, high interest rates, and higher monthly minimum payments.
You can avoid a maxed-out credit card by regularly monitoring your spending and setting an emergency fund. You can also request an increase in your credit limit or pay off the balance.
Ideally, you’ll be able to pay off your entire balance at the end of each month, but this may not be possible for some people.
The credit utilization ratio, or how much of your available credit you use on each credit card, is one of the most important factors credit scoring models take into consideration when calculating your credit score. If your credit utilization ratio goes over 30%, it can negatively affect your credit score.
2. You’re Experiencing Frequent Overdrafts or Bounced Checks
Keeping track of your balance is one of the best ways to avoid overdrafts or bounced checks. You can do this by using your bank’s mobile app, a credit card or an online budgeting tool.
You can also prevent overdrafts and bounced checks by writing checks promptly. This is important because a check takes a few days to hit your account.
It’s also possible to avoid overdraft fees by linking a credit card to your checking account. However, make sure that the credit card you link to your checking account is through the same bank.
Overdrawing your bank account can have a negative impact on your credit score. This is because the lender may carry out a hard search on your credit history and this can be seen by other lenders.
4. You’re Not Keeping Track of Your Total Debt
It’s easy to get caught up in a frenzy of buying things, and you may not be keeping track of how much you’re spending. Taking inventory of your expenses is the first step to creating a budget and managing your money. To do this, you’ll need your pay stubs, bills, and receipts for purchases. Once you’ve gathered these, calculate your total debt and compare it to your monthly income. This will give you your debt-to-income ratio, or DTI, which is a useful indicator of your financial health. Ideally, this number is less than 15 percent of your net income. This will help you determine whether you’re on the right path or not.
5. You’re Using Cash Advances From Your Credit Cards
If you often use your credit cards to cover emergency expenses that require cash, this is a sign that you have a serious problem with your finances. This is a bad financial decision and should be avoided.
The main issue with a cash advance is that it’s a very expensive short-term loan. You’ll pay interest on the money you withdraw, plus ATM and bank fees as well.
The other major drawback is that taking out a cash advance can hurt your credit score. This is because it increases your credit utilization – the amount of your revolving credit you’re using. This is the biggest component of the FICO scoring model and can make a big difference in your credit rating.
6. You’re Using Your Credit Card to Pay Other Bills
While it’s not uncommon to use your credit card for other expenses, you should take note of when and how to do it. Paying your credit card bill with cash can save you hundreds of dollars in fees and interest charges over time. The same goes for paying with a debit card. The best way to ensure you have enough credit on hand is to establish a solid budget and stick to it. If you are prone to late payments, this can lead to a major snafu down the line. Fortunately, there are many free and low cost credit building tools available to help you on your path to financial health.
8. You’re Experiencing Credit Denials
If you’re experiencing credit denials, it’s important to find out why. The Fair Credit Reporting Act and the Equal Credit Opportunity Act require lenders to provide you with a reason for denying your application if you ask within 60 days. You can also contact a reconsideration department to ask about your case.
Once you understand the reasons for your denial, you can take action to improve your situation and re-apply. This could include reviewing your credit report for any errors that may be affecting your score or looking at ways to pay off existing debts before applying for new lines of credit. This will give you a better chance of being approved the next time around. It’s not always easy to overcome a credit denial, but it can be worth it if you take the time to address your issue.
9. You’re Experiencing Bankruptcy or Debt Management
Bankruptcy and debt management are two options for those who are overwhelmed by unsecured debt. However, deciding which option is best for you depends on several factors.
Bankruptcy is a last resort option that should only be considered in extreme circumstances where it is not possible to manage your debts on your own.
While bankruptcy will hurt your credit score and could lead to the loss of your property, it can also provide significant financial relief. It can be a lifesaver in situations like losing your job, receiving an unexpected medical bill or being sued for an extraordinary amount of money that you cannot repay.
10. You’re Experiencing Deep Cuts
One of the most stressful parts of our jobs is the inevitable pay cut. Even if you manage to negotiate something like a 50 percent raise, it’s not a given that you won’t have to forgo luxuries such as a family vacation or new home. It’s a tough pill to swallow, especially in a tight job market. The best way to combat this is to get your financial house in order and make it a point to save money every chance you can.