Debt does not typically hit individuals all at once, and accruing large amounts is instead a gradual process. However, many consumers may not realize they are in over their heads until their credit card balances have climbed so high than they are unable to save money or meet all of their financial obligations. There are several signs consumers should watch for that may indicate they are heading down a dangerous financial path, and being aware of them may prompt individuals to reevaluate their spending decisions.
One of the first and most telling indicators of strained finances is an inability to pay all bills when they are due. Individuals who have to prioritize some bills over others, or pay less than the full amount due just to keep their heads above water are likely overextending their finances. In addition, this often leads to penalties and late fees, which will only add more of a financial burden on top of an already strained situation. Lastly, frequent late or missed payments may be reported to the three national credit bureaus, which can lead to a damaged credit score.
Relying solely on credit cards to pay bills is another common indicator that trouble may strike. Being forced to depend on credit cards reveals that consumers lack the income to meet their financial obligations. And if they are using credit to pay their balances in full, it is likely that they are not financially able to pay their balances in full at the end of each billing cycle, resulting in higher amounts of rising credit card debt. This can be problematic not only for their credit scores, but also for their overall financial positions. If their balances continue to climb, they run the risk of maxing out their credit cards and being unable to both pay down their balance and cover their bills.
A lack of savings, both traditional and emergency accounts, is another risky scenario that consumers should not ignore. Savings cushions protect individuals when unexpected emergencies occur or they need to make a large purchase. Without savings, adults are often forced to borrow money, which comes with added interest and fees.
Overcoming these financial setbacks requires individuals to be more diligent about their spending, and develop a money management strategy that allows them to pay down debt and build savings. Because each situation varies, working with a professional credit counselor can be an effective way for adults to analyze their unique financial picture and determine a solution that falls in line with their income and goals.