There are a wide variety of warning signs out there, telling you that you are too far in debt, indicating that changes need to be made if you want to remain safe from bankruptcy. Here is a look at some of these warning signs.
One major warning sign that you are being buried in too much debt is that you make the minimum required payments on your credit cards for months on end. Making only the minimum payment, $20 or 2%, whichever is greater, is a poor financial habit, a habit that will cause you great harm sooner or later should you carry on with it.
If you owe a sizeable amount on your credit card or if your credit card balance is extremely high, you will find that it might take you years to pay it off, costing thousands of extra dollars in interest payments. You will find yourself using a credit card to pay off another credit card, an even worse situation, signifying that you are in great danger, possibly close to bankruptcy.
Some people out there enjoy indulging in a bit of window-shopping. Other people buy everything that catches their fancy, a dangerous habit, a habit that can pile on the credit card debt, indicating that the credit cards are not being used responsibly. Just to be clear, there is nothing wrong with using credit cards. However, they have to be used responsibly, meaning that one only makes those purchases that one can easily pay off in their full amount when one’s grace period of 21 days ends.
If the amount that you spend shocks you when a month ends, you are probably an impulse buyer. To avoid impulse purchases, draw up a budget before the beginning of every month, removing any items from your list that are not essential. Then stick to the budget you have drawn, no matter how tempted you might get to buy something that you do not need.
Making late payments on your bills is one sure way to ruin your credit score. If you find yourself consistently making late payments on your credit cards, payments after the due date, it is reasonable enough for you to engage in some deep introspection, getting to the root cause of your late payments. If you discover that the reason behind this is simply forgetfulness, that is a problem easily solved by setting up PAC (pre-authorized chequing).
Avoiding a pressing problem might give you peace of mind in the short run, but in the meantime, the debt only piles higher. People sometimes avoid their online accounts and bills, fearing the bad news that they may see. However, what one has to realize is that this only exacerbates the problem.
In fact, if you are engaging in avoidance. It is a warning sign that your debt is piling higher, reaching unmanageable proportions. While you are feeling better temporarily, your situation is getting worse and worse, with interest quickly adding up.
Maxing your card(s) out
The purpose of credit cards it to help finance small purchases that are inexpensive and will not get you into debt. Yet it is shocking how often people treat their credit limit as if it was their spending limit, getting themselves into trouble in the process. This kind of thinking poses tremendous dangers to one’s personal finances. If your credit card is maxed out each month and you pay only the minimum amount required, you are inviting disaster. Always keep your spending under control. Use your credit cards for things that you need, not for things you want.