This article was written by Alaina Forbes for Manilla.com.
Financial troubles do not often appear out of nowhere, but if bad financial habits have become the norm, you may not see the warning signs. Here are five red flags that you may be heading towards financial trouble.
1. No Significant Savings or Emergency Fund
A savings account is a necessity for any family, regardless of your income. Some may prefer a savings account that also functions as an emergency fund, while others may prefer a separate emergency account. The purpose of this emergency fund is to have money available when the unexpected happens. This could be something small, like an unexpected car repair, or a big event, like the loss of a job. The amount of money needed for an emergency fund varies based on where you live and the expenses you have. Generally, experts agree that there should be at least three months of income in the fund, possibly up to a year's worth. Living without a savings account or emergency fund is a gamble that may land you in serious financial trouble.
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2. Borrowing to Pay Other Loans
Maxed out credit cards, where users can barely pay the minimum due each month, are a true sign of financial trouble. Even worse are those who may find the need to begin borrowing at high interest rates for cash advances in order to pay other loans or bills. Borrowing from one credit card to pay another credit card or loan is a cycle that can only be sustained for so long before you will be unable to keep up. High interest pay day loans used to catch up on bills are also a bad idea and are usually a response to living paycheck to paycheck. Take a step back and evaluate your financial situation and what can be done to change it.
3. No Health Insurance
Living without health insurance or without enough insurance is a risk not worth taking. While some may argue that the cost of health insurance makes this bet worthwhile, one bad accident and you could find yourself over your head in medical debt. An emergency room visit or even a very short hospital stay can stack up tens of thousands in medical bills very quickly. Make sure your insurance provides enough coverage to keep your family out of financial trouble.
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4. Credit Denial
Being denied credit should be like a big warning sign saying, "You are in over your head." Most credit providers base this decision on credit history and credit score. A below-average credit score can mean lenders will charge a higher interest rate, but when lenders stop approving you for credit all together, this means trouble. A very low credit score can be caused by a combination of many factors. Some of these factors may include your debt to credit ratio, multiple late payments, and your total amount of debt owed.
5. Ignoring Debt
Most families find they will have a need for credit at some point. Knowing how to use this credit appropriately can be a hard lesson to learn. Borrowers who choose to be ignorant of the amount of debt owed, or the fact that there is no end in sight for paying it off, need to make some changes quickly. Consumers can spend freely, ignoring the climbing debt only for so long before a financial disaster is in sight. Any loans or credit purchases should be made with a plan for how and when they will be paid off.
Alaina is a contributor to The Manilla Folder at Manilla.com, the leading, free and secure service that lets consumers manage and share all of their bills and accounts in one place. Alaina is also the founder and editor of her blog, Telecommuting Mommies, and she also opens up her personal life as a homeschooling, blogging, work-at-home mom of four at The Maestro Mom. Follow her on Twitter at TelecommuterMom.
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