Does your money end before your ends meet?
According to recent reporting concerning people, debt and money (and more recently from The Guardian), Americans are living with some tough financial news:
- up to 80% of Americans live paycheck-to-paycheck
- up to 50% of Americans cannot cover a $400 emergency without selling something or borrowing money
- up to 40% of Americans have credit card debt greater than their savings
- only 25% have a retirement account
Improper views of credit, and the companies capitalizing on them
Many consumers have been hit hard by the promise of “buy now, pay later” ads; or the promise of 0.00% APR for the first X months.These offers along with service providers like check cashing outlets or payday lenders always come at high payback rates.
In such a highly developed society, with educated borrowers, that have established a free market system, why are so many of us living above what our resources can afford?
In our world, we are constantly bombarded with images of a standard of living that is not sustainable – at least long term. Further, these images come at a cost that are often times hidden.
The 6 signs that financial trouble are on the horizon
For most people, hindsight is always 20/20 vision. Once something bad (or good), has happened, we can see it clearly. We can see every step that led up to it. We can see the flags and warning signs, and we can even see the smallest turns that led us to that end.
Foresight, on the other hand, is usually horrible. It is difficult to simply look ahead and know what will and can happen.
However, when we attempt to use both with every decision, a new type of sight becomes known. This is insight. This is a mesh of our histories, coming together when we have a new decision to make. This insight creates our ability to see things correctly and find the best results.
Today, we want to use our years and years of knowledge and expertise to give you the right foresight for your financial health. If you are experiencing any of these signs, you can start correcting the ship now – before you become grounded.
More than 25% of your net monthly income is spent paying back credit cards or other loans
What we are talking about here is DTI, or debt-to-income. DTI is a ratio of how much debt you are living with versus your income. For many people, nearing 25% can be a problem. When you go over, it gets very bad. And, conversely, the lower your DTI, the better your financial situation likely is.
There are three main ways that you can drop your debt-to-income ration. The first is to simply make more money. The second is to lower your debts and loans with extra payments and less spending. The final option is a combination of the other two – making more money, while dropping your expenses.
You are borrowing money to make payments on loans you already have
When you get a loan, the primary expense is the interest rate on the money left to repay. This is how banks, credit unions, credit cards, etc., make their money on loans. Some are larger than others. For instance, credit cards have much higher interest rates than home loans or car loans.
Now, imagine taking a loan to repay a loan. Not only are you paying on the first loan’s interest, but you now have another loan’s interest to repay. And, when you think about someone getting another loan to pay off the previous, your interest rates can swell to a larger amount than your income.
You are frequently near or over your credit lines
Credit lines can range from a few hundred dollars, to thousands and tens of thousands (and more) dollars. But a credit limit does not mean to hit that limit every month.
Being at or near your credit card limit usually means that you are spending for basic household needs on your credit card. And that is usually an extended problem of not having the income nor cash you need for these items.
As we described in our Q&A article “How do credit cards affect my credit rating?”, having too many open lines of available credit can affect you. Similarly, being at or near your limit all the time can impact your credit rating.
You are only paying the minimum payments on your credit cards
Minimum payments for your credit cards means that you are really only paying interest, plus a touch more of your actually credit card amount owed. Your goal is to pay off debt, or pay down on it.
If you can, pay more monthly, but with a focus. The easiest way of doing this is to look at your credit card balance. Decide if your budget will allow you to pay 10% of that balance…or 20%, or even 30% per month. Then, pay that per month, instead of the monthly minimum.
You are paying bills late or are putting off going to the doctors for fear of lack of money
Paying bills late can lead to a lot worse than just having some financial issues – specifically, not paying them at all.
And, to further this, you start making the wrong decisions when it comes to your health. Skipping yearly exams, choosing to not refill prescriptions, and even seeking emergency aid shouldn’t be choices that you are forced to make.
You are working overtime or a second job just to have enough to provide for basic household needs
Living beyond your means will, of course, lead to failure in your bank account.
We could assume that your credit card might make up between 5% and 15% of your income. However, getting second job means that they are costing you at least 50% – not good. And if that job is used exclusively to make sure you provide household needs, then your home is secondary to your credit cards; not good.
What can YOU do to fix this?
If these warning signs seem all too familiar, there is help.
Your credit union is here for you. Every loan product we offer has a fixed rate. We are a non-profit organization that is here to help our members. We don’t want you to live in the burden of debt.
Let us help you restructure your debt, consolidate, or use the equity in your home to alleviate the monthly grind. Members have had great success with our free budget counseling services.
Since our beginning, we have sought to do one thing, help our members.