Many people experience an occasional setback that impacts their bank balance. In fact, in today’s economy, it isn’t unusual to find yourself struggling to make ends meet. But, it is important to do all you can to avoid a financial meltdown — a scenario that can bring long-term consequences.
The key to avoiding financial catastrophe is this: don’t hide behind denial. It is smart to stay on top of your financial situation, face the facts, and make necessary changes to stave off looming disaster. People who ignore early warning signs can easily end up in a spiral of mounting debt that becomes an insurmountable problem.
Signs of Trouble
Below are some indicators that you may be headed for financial catastrophe (and should take steps to avoid the potential fallout):
- You are spending more than you make – It’s easy to overspend if you don’t create a budget and stick to it. Tracking your monthly expenses will call attention to items you often buy on impulse, and help you avoid this habit.
- You are bouncing checks – Bouncing a check is an expensive mistake. By the time you are dinged by your bank and penalized by the payee, you can pay $50+ per event. It’s not uncommon to occasionally make an error, but if this is happening because you can’t afford your lifestyle, it’s a looming problem.
- You are “floating” bills – If you regularly miss payment deadlines, you will rack up late fees that add to your balance. Most creditors (including the IRS) routinely assess penalties for late payment. Payments that are 30 days in arrears are also reported to credit agencies, affecting your score.
- You carry revolving credit card debt – If you are making minimum payments on your credit card balances, you are paying a LOT of money in interest and will continue to do so indefinitely. Credit card interest rates are much higher than other types of credit; you may be better off transferring a large balance to obtain a lower rate.
- You have little to no savings – It is important to maintain a balance in the bank to use in case of emergency; ideally, you can cover three months of unemployment in case you lose your job. If you live paycheck to paycheck, it is time to cut out unnecessary expenses or add a new source of income – and start saving money.
- You have no health insurance – Although the laws have changed and you are no longer penalized for going without health insurance, you court disaster if you are uninsured. Subsidies are still in place that can offset health insurance premiums and get you covered for little personal expense.
- You are not planning for retirement – Many people feel retirement is far away, and they would rather use their resources today than save for tomorrow. Depending upon your age, saving for retirement (and taking advantage of an employer’s matching 401K contribution) may be crucial if you want to avoid a future disaster.
Many people who ignore the signs of financial catastrophe eventually find themselves in bankruptcy court. If you have made mistakes and need to act quickly to avoid bankruptcy (or if filing is looking like the only answer), Bunch & Brock attorneys are here to offer advice and legal help.
