Most personal financial crises take years to become something as serious as a bankruptcy or foreclosure.
The good news is you can keep any temporary financial problems from becoming serious by watching out for the warning signs.
It may be time to reevaluate your budget if:
1. More than 20% of your income goes towards loan payments.
2. You have to borrow money or charge your credit card to pay off current loans or bills.
3. You cannot pay your basic living expenses with one job.
4. You have to pay bills late, or choose which bills to pay.
5. Your emergency fund is nonexistent.
6. Your credit cards are maxed out.
7. You pay only the minimum balance on your credit cards.
8. You’re spending more than your credit card limit.
9. You consistently take more money of out your checking account than you have.
10. You don’t have any money left over after paying monthly bills.
You may already be at this point. This does not mean it’s time to give up! According to Credit.com, there are three steps to taking control of your finances when you find yourself in a crisis:
1. Evaluate your situation.
Figure out how much money you owe and who you owe it to. When you have a clearer understanding of your crisis, you’ll have a clearer understanding of what you need to do to fix it. If you have debt, talk to the lender or creditor about payment plans and options.
2. Investigate your options.
Depending on what type of financial crisis you’re having (i.e. unemployment, major illness, inability to pay bills) there are different options to either avoid going into debt or paying off the debt you already have. For example, if you can’t pay your monthly utility bill, maybe all you need to do is borrow money from a family member for a couple of weeks. But if you’re unemployed, your solution may involve applying for unemployment and taking out a small loan to cover expenses until you find a new job.
3. Take action.
Once you know what you need to do, do it!
Usually, if you’re in debt (or about to be) the problem will not resolve itself. Whether you decide you need to take out a loan, borrow money from a family member, figure out a payment plan, or simply reduce your expenses, stick to your plan once you come up with it.