Signs of Debt You Need to Know

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How to Spot the Warning Signs

Sometimes, falling into debt can happen quickly and unexpectedly. You may think you have everything under control until all of a sudden, you don’t. Debt is a massive source of stress and can be detrimental to your mental well-being as well as your financial future. Here are some of the warning signs that your debt is becoming uncontrollable and a few tips on what you can do to minimize the effects, get your life back on track, and prevent this from happening again.

1. Your Total Debt is Increasing Every Month

Debt can often get out of hand really quickly. Many times, consumers think they will be able to catch and before they know it – they can’t! There are several warning signs along the road to debt that are pretty good indicators that you may be into some trouble. Knowing how to spot the warning signs is a great way to try and minimize your debt and maybe even prevent things from getting out hand. Here are the warning signs of debt every consumer should be aware of.

2. Your Total Debt is Increasing Every Month

You pay your debt every month so the total should be getting smaller, not bigger. If your debt continues to grow, it means you are unable to pay it back the way you are going about it. Unless you foresee more money coming into the picture in the near future, the problem will continue month after month until your bills are unmanageable. At that point, your credit will suffer and you may very well lose access to things like utilities, if you cannot pay the bills.

When you first notice your debt total is going up instead of down even though you are making payments, you should seek financial counselling right away. The longer you wait to seek help, the worse the situation may be in the end.

3. You Are Missing Payment Deadlines

If you are finding yourself unable to meet your payment due dates and are regularly paying bills late, it means you don’t have the funds to pay back what you owe. This is a very precarious situation because if you don’t slow down on your spending, you will not be able to make the payments at all.

If this is happening to you, you should sit down and review all of your bills in detail and see where you can cut and save to minimize your debt load. You’d be surprised how a few bucks here and there saved each month can impact your finances.

4. You Are Only Paying the Minimum

If you are unable to pay your bills in full each month or worse, you are paying only the minimums, then you are on your way to major debt problems. if you’re not already there. Paying the minimum or not paying the total will slow down your repayment time, increase your interest debt, and damage your credit score.

If you are underpaying your bills each month, you should seek credit counselling before the debt grows too much.

5 Your Credit is Maxed Out

If you have no more available credit on your credit cards or credit lines, you are spending way more than you can afford. Using up more than 80% of your credit can also be damaging to your credit history but it also means you are currently in a situation where you owe too much. If this is happening to you and you have no credit left for an emergency, you should consider working towards a debt consolidation plan that will help you manage your debt better.

6. You Are Losing Sleep Over Finances

If you are concerned about your financial health to the point that you are losing sleep or having problems in your relationship, then you may be dealing with too much debt. Financial concerns are one of the biggest causes of stress and marital troubles. When your financial situation begins to affect your life in this way, it means you owe more than you can pay back and you don’t see a solution in sight. This is a very common problem among Canadians, especially around the holidays when spending reaches a yearly high.

If your financial situation is affecting your daily life, you can and should seek financial help from an accredited advisor.

Collections Agencies are Calling

If collections agencies are calling you, it means you have bills that are so behind in payment that the creditor has hired a third party to track you down and get paid. Being placed in collections has a negative impact on your credit rating. At this point, it usually also means you have accumulated quite a bit of interest on your bills, increasing your debt even further. If creditors are calling and asking for funds, you are behind in paying them and will need to figure out a solution quickly.

1.You Can’t Get Any More Loans at the Bank

If your financial institution is denying you access to more funds, it means your debt exceeds what you can afford to pay. The bank will always analyze your earnings, your credit report, and your income before offering you any more credit. If they don’t feel you can afford to pay them back, they will flat out refuse. This can affect your ability to secure a mortgage or get a credit line to help you through tough times.

2. You Are Relying on Cash Advances

Relying on cash advances for money is a tricky game. For starters, it’s a clear indicator that you no longer have the funds or the credit to get liquid money you need for essentials. It also comes with a hefty interest rate that can weigh you down even further in the long run. Another side effect of cash advances is the toll they take on your credit score, which can impact your future in so many ways.

If you ae relying on cash advances, you are in need of financial help. Your debt is already getting out of hand and it is unlikely to be controllable without outside intervention like credit counselling services. When debt grows, it grows alarmingly fast. Before you get caught up in it, reach out to a financial advisor and see what your options are.

3. Debt Payments Make Up More than 20% of Your Income

If you are spending more than this on consumer debt alone (you can go ahead and exclude your mortgage from this percentage as that is considered “good debt” to have), then you are definitely in a sticky situation. Spending more than 20% of your income on your debts will lead to more debt. Why? Because you are leaving yourself with less than you need to pay for the things that are essential which will likely lead to you accumulating even more debt.

Sit down and calculate your expenses. If you are spending more than 20% of your income on debt repayment, you are in need of financial advice to help get a real handle on the situation.

4. Transferring Balances from One Credit Card to Another

This is known as debt transfer and it leaves you at the exact same place every single month. In fact, it just grows from here on out because interest continues to accumulate. This is just a way to buy some time and prevent you from falling into collections but it is not solving the problem. In fact, it is exacerbating it. Debt transfer is not the same as debt repayment. If you find yourself doing this, you have reached the point where you need help to manage your debt crisis better.

Other Warning Signs Debt is Getting Out of Control

Here are is a quick look at a few other signs that you are falling into a debt crisis you may not be able to get out of on your own:

You are hiding your spending from your family
Your services or utilities are being cut off
You avoid opening bills or logging into your bank because seeing your payments and debts causes stress
You don’t actually know the total value of debt you have
You spend more than you earn consistently
Your wages are being garnished
You cannot afford to save
You owe money to several different lenders at a time

How to Manage a Debt Crisis

If you have passed the warning signs or are currently starting to recognize some of them, there are a few steps you can take to help solve the problem and nip it in the bud – before it becomes too much for you to handle. Here are a few strategies to help minimize your debt load once you become aware of the warning signs above.

1. Cut Your Spending

The first step is to minimize your spending as much as possible. Start by cutting out everything non-essential. This can include clothes and shoes you don’t really need, restaurants, outings, and other wants. Reducing your spending will give you a little more flexibility to start paying down your debt and prevent you from getting into more debt.

2. Use Cash Only

If you are unable to get a handle on your credit card spending, put them away. In fact, out all of your cards away and rely on physical cash. This will force you only to spend what you have allotted to yourself and not more. This will prevent your credit card debt from growing.

3. Get a Second Job or a Side Hustle

Earning extra money is a great way to help pay down your debts faster. The more you can earn, the more you can pay off. This may not be a long-term solution as working more than one job can be time consuming and tiring. But you can at least try to pull it off for a period of time. Any extra income is better than none.

4. Consolidate Your Debt

If you owe more than one lender or you are paying high interest rates – like with a credit card, for example – the best thing to do is consolidate your debt. This can minimize your overall interest payments and make your repayment plan more manageable. Being able to make your monthly payment will slowly help to improve your credit score as well. Meeting with a financial advisor can help you figure out the best course of action so you can out your debt behind you for good.

5. Explore Different Loan Options

If you cannot get a loan from a traditional banking institution due to poor credit, you may have to consider a private lender in order to get the funds you need to consolidate your debts. Independent loan companies like BHM Financial. Direct lenders will never consider your credit history as a determining factor. They will evaluate your current income and help you get quick and easy access to the funds you need to consolidate your debts and start improving your financial situation.

How to Avoid Getting into Debt

Sometimes, debt in unavoidable. Life circumstances can make it such that debt is a fact of life at least sometimes. However, there are plenty of things you can do to reduce your chances of falling into debt dramatically.

1. Keep Track of Every Dollar

A spreadsheet is your friend. Keep track of every incoming and outgoing dollar. This will help you keep a better handle on your expenses and see exactly where your money is going. This can help you reduce your chance of overspending and encourage you to stick to your savings plan. Plus, looking at your expenses makes it very simple to cut out unnecessary ones. Losing track of your finances is a quick and easy way to wind up in debt. This way, you’ll always know exactly what you have to spend.

2. Make a Contingency Fund

Having a savings account for emergencies can help back you up when the unexpected hits. Unforeseen expenses can land consumers in debt very quickly. Having a safety net for these types of situations is very helpful. Make sure to put away at least 10% of your income every month. After you have out it away, be sure to keep it there until you absolutely need it. If you can remain disciplined enough to leave it alone, you’ll be very thankful when an emergency does happen.

3. Don’t Use Credit as an Advance

Your credit cards are there to help you build a credit report, not to help you buy things you can’t afford today. To make sure you don’t go into debt, be sure not to spend more than what you have available to pay. If you don’t have the funds available today to spend, don’t put the expense on your card with the assumption you’ll have the money tomorrow. You may not and then the cycle of debt will catch up to you very quickly.

4. Get Financial Advice

No matter what your financial situation is like, it’s always a good idea to meet with a financial advisor once a year to make sure you are on the right track. Sitting down with a financial professional can help you keep better track of your finances and make better financial decisions in the future. A professional can go over a monthly budget with you as well and make sure you do not overspend. If you don’t consider yourself to be financially savvy, an expert can help guide you and teach you everything you need to know about maintaining a healthy financial profile.

5. Reduce Your Spending

This is always a hard one but it is a really important one. No matter how much you earn, you have to make sure you aren’t spending more than what you are making. Even a millionaire can go broke if they aren’t sending smart. The issue isn’t always how much we earn but how much we spend. If you can cut down on unnecessary costs, it can help you save so much more money and avoid landing in debt. Just a few dollars saved each week can amount to a lot at the end of the year.

Ask for Help

When you find yourself in financial trouble, don’t wait and hope the situation will improve. In most cases, it will just get worse. Asking for help from a financial advisor or a private lender can help you get a hold of your financial situation. The sooner you get a handle on it, the less debt you will accumulate and the quicker you can get rid of that debt for good. Letting debt fester because you don’t want to deal with it or don’t know how to deal with it will result in even more debt.

Meeting with a financial advisor at BHM Financial can help transform your situation. You’ll work on developing a customized repayment plan that actually works for you and you will be well on your way to managing your debt, paying it down, and beginning the path to financial freedom. The sooner you can get started on managing your debt crisis, the better!