I vividly remember being in my kitchen a couple years ago and having to decide between two bills to pay: our mortgage or day care. My husband had recently gotten laid off for the second time in four years, and in the meantime, we had doubled our family, moved into a bigger house and I had cut back working to part time. Our savings had quickly been depleted to manage our growing expenses, and before we knew it, we were broke.
That day, I decided to pay the mortgage and put the day care bill on a credit card. I also knew that something had to change. Having to go into debt to cover a fixed monthly expense was a screaming red flag of serious financial trouble.
Ultimately, my husband and I both went back to work full-time, we significantly scaled back our lifestyle and eventually rented our house and moved in with family. This allowed us to get out of debt, afford our recurring expenses and save a little money for a change. If, like me, you have noticed indications of a potential financial problem, get motivated to take action. Trust me: If you ignore them, your situation will only get worse.
Here are seven red flags that you’re in financial trouble, plus solutions to get you back on the right track.
Mind These Red Flags
You Have No Idea How Much Money Is in the Bank
The signs: You use your debit card freely and thoughtlessly, assuming you have money in the bank — but you’re not always right. You rack up overdraft fees on a regular basis.
The problem: Living in La La Land will land you in Never Never Land — as in never going to achieve your financial goals. Besides, you are potentially wasting hundreds of dollars a year on unnecessary fees.
The solution: Wake up! You need to get in the habit of checking your bank account balance on a regular basis (once a week at least) and studying your monthly bank statements to get a grip on where your money goes and how you can better control it. Try only paying in cash for a month to begin training yourself to spend mindfully.
You Use Credit for the Basics
The signs: You’re at the checkout line at the grocery store or at the gas station and the amount due makes you nervous. So you choose to swipe your credit card instead of your debit card.
The problem: You are living paycheck to paycheck and racking up debt.
The solution: Something’s gotta give. Your spending is a good place to start. Review your budget and look for areas where you can cut back (maybe eating out, groceries, personal care, etc). You may need to reevaluate your living situation — perhaps relocate somewhere cheaper, or seek out opportunities to increase your income, whether it’s a different job or a second, part-time job.
You Avoid Opening Bills and Credit Card Statements
The signs: The pile of unopened white envelopes on your desk is growing. (Or if you’ve gone paperless, you have a growing list of bolded, unread emails.) You’re also avoiding answering calls from 1-800 numbers.
The problem: You are drowning in debt.
The solution: You need to answer the phone or call whoever you owe money to and explain your situation. You might not believe it, but most companies are willing to work with you to figure out a payment plan that offers you some relief while ensuring that they continue to get paid.
You’re Don’t Think Twice About Adding More Debt
The signs: “Ah, what’s another $100? I’m already in debt anyway.” Sound familiar? Justifying an obvious bad habit is a big red flag.
The problem: You are resisting necessary change. It’s easier to continue bad habits than to do the hard work it takes to develop good ones.
The solution: Cut or lock up your credit cards (or delete your saved credit card information from your most frequented online retailers) so you can avoid temptation as much as possible. Also, when you find yourself justifying an unnecessary expense in your mind, say it out loud. Chances are, hearing the words will help you catch yourself before you make another mistake.
You Find Yourself Saying, “Just This One Time.”
The signs: You know you are doing something you shouldn’t, like tapping into your 401(k) or using credit for a cash advance, but you justify it by convincing yourself it will be a one-time thing.
The problem: Committing a financial crime once almost always leads to being a repeat offender. Soon enough you’ll be saying “just one more time” and then Pandora’s box of bad money behaviors is wide open. This can quickly add up to deep debt and serious financial trouble.
The solution: Don’t do it! If it feels wrong, it is wrong and you don’t want to risk becoming numb to poor financial decisions. To help avoid temptation, take a few minutes to Google your idea and read lots of reasons why you shouldn’t do it.
You’re Paying Off One Debt With Another
The signs: You transferred a credit card balance to another card, plan to or are always tempted by balance transfer offers. Or you’re paying your mortgage, car or student loan bill with a credit card.
The problem: You live way beyond your means. And balance transfers, while beneficial in some cases, are often the result of credit card abuse combined with a lack of discipline to pay off the debt. Plus, they can cost you hundreds of dollars in fees (or more if you do it repeatedly).
The solution: Put your fixed loan payments on autopay and organize your debts with a clear action plan to pay them off in a timely manner that will save you the most money in interest and allow you to avoid paying extra debt consolidation or balance transfer fees. Call your creditors to negotiate lower rates and create a customized payment plan if necessary. (Keep in mind that it might take a few calls to get the response you want.)
You Ask Family or Friends for Money
The signs: If you can’t afford an expense and have to ask someone for a loan, you’re probably already in financial trouble (or trying to buy something you shouldn’t).
The problem: Using others as a money crutch hinders you from ever achieving financial security and freedom. If you don’t let yourself fail or say “no” to yourself, how will you learn from your mistakes and ultimately make better money decisions?
The solution: Rather than mooching from a family member and/or friend, enroll them in your mission to achieve financial independence. Ask for their guidance and plan to check in with them on a regular basis. Having an active partner in your financial fitness program (like a workout buddy) will help you stay on track and accountable.