What are the early indicators that my financial situation is worsening?

We all deal with our finances in different ways. It’s human nature to approach things how we feel most comfortable and that’s no different for how we manage our money. But what if the most comfortable way of dealing with something isn’t necessarily the best? What if both our financial situation and overall well-being could be greatly improved by watching out for telltale signs of trouble so we can act fast.

We have put together a brief list of the key warning signs that you might be getting into financial trouble.

You're spending more than your monthly earnings

This is pretty obvious, yet so often overlooked. It’s very easy to spend beyond your means these days thanks to credit and flexible ways to pay. But do the maths: you spend more than you earn and that balance has to come from somewhere, and it’s most likely going to be a bank that’ll want it back.

The positive spin here is that once you’ve mastered the art of spending less than you earn, you can start to save, so that accruing balance will be yours to spend and not someone else's to be paid off.

You have one or more maxed-out credit cards

Most of us get credit cards with the best intentions. ‘It’s for emergencies’, or ‘I’ll pay the balance every month’, or with certain cards, ‘I’ll use it to buy big ticket items that I want covering with accidental damage or travel insurance’. Admirable, sensible and logical. But occasionally, the story doesn’t end so well.

Once a credit card is maxed-out it essentially becomes an expensive loan. That new tablet computer or electric scooter (that you hardly ever ride and would never have normally bought) are accruing a high level of interest that is going to make enjoying them bitter sweet. The truth is most items that are bought on credit cards are long forgotten whilst you struggle to pay off the balance. It might feel like free and easy money, but it’s actually one of the most costly ways to borrow.

You can only cover the minimum repayments on credit cards

In an ideal world we’d only ever take money off a credit card that we had somewhere else to pay back if need be. The reality for many is not so optimistic. Credit cards tend to be easier to get that loans, mainly because of the higher interest rates and that they are often issued by a bank that knows your history. For this reason many people end up using them as make shift loans.

When the balance on your credit card is bigger than your spare cash, or when the minimum payment all you can cover, it’s time to look at cutting up the card and formulating a payment plan to get the balance down. The key is to try and pay as much as possible each month to save on the interest whilst you clear the debt.

You have very little or no savings

As with everything finance related, it’s very much linked to your personal circumstances. The event that pushes one person to turn to credit, may wipe out another’s savings – life happens and we do our best to react. Saving should become second nature, and if it’s not you need to ask yourself why and what you can do about it.

The importance of putting money away when you are financially secure should not be underestimated, in fact it’s the best way to create a buffer for life’s little surprises. Savings may suffer in a crisis, but it mitigates the need to turn to credit that has to be paid back when the crisis is over. Likewise, not having any buffer in the form of savings could be a sign that it’s time to take a closer look at your finances.

You are often late paying bills or loan payments

There are of course a few reasons you might miss bill and loan payments. You may be travelling, ill, or just a bit disorganised. These days, however, direct debits and automatic payments have all but put an end to this kind of laissez-faire money management, and if you’re still missing payments it’s more likely because the money is just not there to cover them.

As well as being a sign of financial trouble, it’s also not so good for your pocket. Often banks and loans add fees and charges for late payments, and on top of this your credit scoring will get damaged. It’s time to take a look at where your money is going and cut out any unnecessary spending. If you’re still having trouble covering your liabilities you should contact loan providers to set up temporary payment plans.

You've started using your credit card to pay for everyday things

When things get tight financially, and with families to feed, we often do whatever we can to keep life running as usual. If we have overdrafts or credit cards then they tend to be the safely net we turn to first, but they are not always the best option.

Turning to credit to cover everyday living means there is something amiss with you finances that needs addressing. But there are several things you can do immediately to make the situation a little easier. Firstly, look at the non-essential things you might be paying for. Entertainments and take aways might be nice but are they essential? Cut them out. Secondly, if you’re income is still not covering your lifestyle you’ll need to look at the options available to you for bringing in more money. Maybe it’s time to ask for that promotion?

You keep spending on credit as the debts rack up

It’s very often just a case of identifying a problem and taking the right course of action to fix it. Financial issues are always manageable, you just have to draw a line in the sand and take charge from there on. The danger comes when you choose to ignore the issues and continue spending beyond your means until the very last bank or lender says no.

Even at this point it’s possible to sort out, but it just becomes a lot longer and harder process when there are multiple creditors and higher balances to deal with. That brings us nicely onto what can be positively called the beginning of the end for anyone with debt problems.

You start getting rejected for credit

Getting rejected for credit often signals the end of the road for those struggling with debt, and it’s often a welcome intervention because the end of credit means the beginning of a solid plan to repair finances and credit scores. The amount you owe at this point can vary greatly, as banks tend to take awhile to catch up with you. Someone with perfect credit and solid financial history can theoretically rack up large debts, whereas a student who went wild with their first credit card and missed a few payments in a row might also lose the right to credit for a while.

Use this time to reassess your finances, adjust your lifestyle, take a look at your income streams and see how you can tweak the overall balance to your financial advantage. A good way to repair your credit score is to get on top of current debts whilst making sure you don’t miss payments on agreements you haven’t yet defaulted on.

Where to go from here?

• Contact your banks, they are not the enemy and are often willing to help

• Fill out an income and expenditure form, it’ll help you see where you can make savings and cut out unnecessary spending

• Make a payment plan for each creditor and let them know, in many countries a promise to pay something affordable each month can hold off damaging legal action

• Destroy credit cards that are maxed, it’ll stop you reusing them and they can always be reissued when you’re back on top of things

• Talk to family and friends about your financial problems, talking about money is something we don’t do enough of and can help with the pressure and isolation – also, others may have great advice that you might otherwise miss out on!