An uncertain economy, already high levels of personal debt, and the desire to reward oneself in December after a brutal year mean many of us either have money problems or may have in the near future.
Benay Sager, chief operating officer at DebtBusters, the country’s largest debt counsellor, says if you recognise the signs of financial stress and act quickly you leave yourself more options to get out of debt or get help to restructure what you owe.
Here are some basic tests to apply.
You’re worried about your financial situation This is usually one of the first warning signs. It starts with niggling worries and can lead to sleepless nights. Don’t ignore it. You may still have time to cut out unnecessary expenses and should definitely get some advice.
Taking action and dealing with the problem will usually make you feel better. Inaction will inevitably worsen both the financial situation and your mental stress. The more stressed and worried you become the harder it becomes to do anything.
You’re not saving any money If debt repayments mean you don’t have enough money to save some each month, it could indicate you’re financially overstretched.
There is a difference between not having any savings and being unable to save. If you’re unable to save because you have to repay debt, you’re borrowing more than you should. If you’re not saving because you’re spending money on entertainment, clothes, or other discretionary expenses you should reconsider your financial priorities.
You’re falling behind on monthly payments Not being able to pay your bills is a sure sign that you’re struggling financially, but on its own, it doesn’t necessarily mean you’re financially stressed yet. If you act quickly and explain the situation to lenders you may be able to work out a payment plan or change the terms of the loan.
You may also be able to re-prioritise your spending, so you are able to make all your monthly payments. A good way to do this is to draw up a budget, so you can see exactly where your money is going and cut any unnecessary expenditure.
You’re using credit to cover your costs If you’re relying on credit cards, dipping into your overdraft account, taking out last-minute loans, or other forms of credit to meet basic expenses such as food and fuel, a big red warning light should be flashing. Usually, it’s only a matter of time before you max out your credit card, or an unexpected expense tips you over the edge.
You’re borrowing to pay your debts You are in an unhealthy financial situation if you’re borrowing money from friends or family, using your credit card to pay your overdraft or vice versa, or applying for more loans to pay what you already owe.
If you’re unable to pay back your debt, taking on more debt is the beginning of an inevitable debt spiral. If you fail to act, your credit score will be affected, limiting your ability to borrow more. Some creditors could also attempt to get back some of their money by repossessing your assets.