Apr 11, 2017

It is always bad to go into debt, but it happens to most of us at least once in life. The problem with consumer debt is that it is often difficult to identify and it is already too late by the time you are in the red. We need clear signs that can help us identify a worsening financial situation.

With every average household in the United States in a debt of over 130,000 dollars, it is essential to learn to avoid this evil as much as possible. Here are eight important signs that you can use in order to find if you are going broke or not.

1.    Living by the Paycheck

The first indicator comes when you start to wait for your payment day. You are struggling each month to reach the end with some dollars in your pocket and have already outlined your expenditure, before getting the next paycheck. Such a situation means that you will quickly fall into problems, such as credit card debt.

You need to break even in such scenarios. You can either increase your income or decrease your expenses. In most cases, it is impossible to make more money as you are already working at your maximum capacity. You will need to significantly lower your expenses in order to save some money each month.

2.    No Savings for Big Occasions

Another way that many people go into debt trouble is that they do not prepare for the big occasions. These occasions occur when you are going to the university or looking to start your family. Raising a child is a difficult financial proposition, and you really need to save money for it. You may also need to save if you are looking to own a car, or simply planning to go on vacation after a long period.

If you have some savings at your disposal, you can pull off a great performance on all the big occasions, without using a credit card. This ensures that you stay away from the cycle of debt and ensure that you can take more risks when an investment opportunity arises.

3.    No Emergency Fund

Life can be cruel and present problems that you may never have guessed. A sudden medical emergency or your employer going broke are incidents that you may have never thought about previously. This is why most experts insist people have an emergency fund to cover financial problems.

There is a no particular amount that you need to put in the emergency fund, but you should always measure it in terms of a percentage of your income rather than value in dollars. Most experts believe that an emergency fund should have at least six months of your regular monthly savings.

4.    Spoiling Kids

A survey done by Price reveals that many Americans go in debt by spending ridiculous amounts of money on their kids. Most parents spend unnecessarily and give their kids items that they actually do not need at all. They often use credit cards and emergency funds for these needs, and in turn are then susceptible to fall into debt.

You don’t need to spoil your child. Just ensure that you are providing them with the necessities of life and they will do just fine. You can research more on how to not spoil your kids and ensure that you are controlling your expenditure on their needs.

5.    Minimum Credit Card Payments

If you are barely paying the minimum credit card payments, you are in serious financial trouble. You should quickly reduce your other expenses and ensure that you are always able to pay back a significant amount of the total balance on your credit card.

You need to understand that a credit card brings debt to you and control its use. In the meanwhile, spend less money on other needs and pay as much as you can each month to stay away from high credit card APRs.

6.    Showboating

Showboating to your friends will always lend you in financial trouble. Showing off uses up your vital financial resources and make you susceptible to fall in a cycle of paying credit card debt or car debt. Remember, you do not have to live up to anyone’s expectations.

The Wall Street Journal reported that people are willing to pay credit card bills rather than concede that they cannot afford a particular item. You should avoid the company which forces you to spend more than you earn. It is not necessary to have the latest iPhone when it is a burden on your pocket.

7.    No Health Insurance

If you think that you can take health for granted, then you are as wrong as you can be. If you face a health issue without insurance, you can go bankrupt in a matter of days or weeks. Always remember to buy a health insurance and ensure that you are able to afford a medical emergency.

8.    No Knowledge of Expenses

Everyone knows their regular income, but do you really care about our expenses as to know the exact amount that you spent? If not, then you will fall in debt sooner or later. You need to document your expenses with accuracy and note it down properly. There are many apps and software tools that you can use for this purpose.

Always know that you cannot perform well financially, if you have no knowledge of your current financial performance. You should look for these eight signs and remove them from your life as soon as possible.

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