In the process of blending our large family the matter of financial was quite an important matter that we had to work through as a couple. We needed to set up a foundation that would preserve what little we had salvaged from our former marriages and our time as single adults since as well as to create a foundation to work towards building both a financial strong hold as well as the home and life that we wanted for our family.
Part of this process was looking at those things we didn’t want to get stuck in the trap of as we knew they were things that would hinder our forward progress. From these discussions we have some up with our top ten practical signs you are in financial hot water. Have a read through to take stock of where you might be financially positioned. If you find you are facing one or more of the challenges below we strongly recommend you seek some professional financial counselling to find ways to better manage the circumstances you find yourself in.
10. You’ve taken payday loans or regularly purchase on ‘buy now, pay later’ schemes.
Payday loans and ‘buy now, pay later’ schemes may sold to you as the upscale version of layby because you have the ability to go home with the purchase on the day BUT what you are being sold is a purchase that you do not have the funds to afford. You are, in effect, taking on a non-refundable debt because once you remove labels or make use of the product you have sealed the debt. Payday loans then take the money from you payday eating into your discretionary spending and possibly your funds needed for bills. The other schemes offer payment by instalments and unlike a credit card there is not interest charges but there are late payment fees.
One of the biggest challenges of these programs is that they are not included under the Australian Financial Regulations at this time so they are not bound to the requirements to act in an ethically responsible way, particularly with people who in reality cannot afford to take on such debt. Because they are not accountable for such checks and balances it puts you at risk of accumulating debt that you cannot afford. If you find yourself using these services on a regular basis you probably need to work on how you can budget for this expenditure upfront instead.
9. You continue making purchases on your credit card.
How much is a safe amount to spend on your credit card? Well, the rule of thumb is that you should not be spending more than the total amount of your discretionary income. If you are paying for household costs on the card, for the purposes of reward points or the like, it is expected that you have already provisioned the funds for those bills from your income and are able to repay the amount. If you are continuing to make purchases on your credit card in and above your monthly discretionary income then you need to look at what you are spending it on and what you can do to stay within your financial limitations.
8. You spend money from your account without considering the balance or allocation.
Just because there is money in your account it does not meant that it is there to be spent as you wish. Each day you accumulate debt towards bills through the power and gas you use, interest accumulating on debts and things like your phone and internet usage. Though you might not have those bills in your email or hand yet the debt is accruing and it is prudent that there is money in reserve for when those bills do arrive. Spending money in your account that should be provisioned for household costs is a dicey move that puts you at risk of not being able to pay a bill on time, especially when your bill might vary by consumption, such as with gas or electricity.
7. You rob Peter to pay Paul.
Now when it comes to debts, sometimes meeting bills on time can be tricky. We understand this occurs especially if there is not enough emergency funds aside and something comes up. There are two ways to look at this though. There is the process of entering into payment arrangements so that you can meet all your bills within the bounds of your payment arrangements. There is a difference between negotiating payments using money you do have when compared to paying a debt by creating another debt.
This is the act of borrowing money from other sources. This extends beyond payday loans to other unregulated funds providers to make purchases as well as to paying unprovisioned household bills with credit cards. In effect, you are not paying anything at all, instead you are simply transferring debt from one source to another.
6. You tap into savings to pay for things that the money isn’t allocated for.
You might have more than one reason for having savings aside. Emergency funds, travel funds, birthday and festive season funds or maybe for savings goals of household furnishings or recreational activities. Whatever the case may be you know why those funds are aside and what they are purposed for. Now, with the exception of true emergency needs, that money should remain in savings for it’s designed purpose. It was put aside so that it would not be spent on other things. If you are tapping into these funds to make ends meet then it is clear that you have some financial challenges.
5. Your late payment fees and overdrafts are part and parcel of getting by.
Didn’t pay your electricity bill on time? That’s $12.00. Missed the deadline on your gas? That’s another $12.00. Missed an afterpay or ‘buy now, pay later’ scheme provider. Ouch, that one is really going to hurt. Overdrew when that direct debit came out? That interest rate isn’t fun either. The thing is that if you rely on paying late to get by then you are costing yourself a packet as well in extra charges that you probably shouldn’t be subjecting yourself to.
4. You have had to delay or eliminate an important major purchase.
Does part of your home or some of your furnishings need urgent repair? What about routine maintenance that simply isn’t happening? Do you medical needs that you should address? Dental work? If you are putting off important major purchases then there is a hole in your budget which might start to hurt like a hole in your tooth if it isn’t dealt with. Putting off important medical and household expenses are a sign you are under real strain and both can become far more costly exercises later on if they are not dealt with.
3. You are not certain you’ll be able to make next month’s mortgage or rent payments.
Once you cannot meet your mortgage payments or rent it is clear that you are under serious financial stress. Your ability to exercise flexibility in where you money goes is no longer existent at this point. Defaulting on what is usually the largest single household payment is grounds for serious concern.
If you are in this situation, it is important to work out with the bank to find means to pay what you can in the circumstance as well as discuss financial hardship requirements. This is a really important time to take on advice from your rental agent or mortgage provider of what they have in place to manage periods of hardship. The earlier you let them know of a risk of non-payment, even if you scrape through okay, the easier it is for them to make arrangements to accommodate your circumstances.
2. You’ve ‘maxxed out’ one or more credit cards or you have extended your credit limit.
When you initially apply for a credit card they base the limit on your income. As credit cards are subject to financial regulation there are limits on how much credit they can initially offer. That is based on calculations of what your discretionary income should be for your income level. If you hit the limit of your credit card or extend your credit limit without a matching increase income you are putting yourself at risk of not being able to meet your repayment requirements.
How much is too much debt to have on a credit card anyway? It appears that a carried over credit card balance of more than 30% of your credit limit will affect your credit rating. Optimally, it should be zero if you pay the card off in full as it falls due. If you have blown right past that 30% then you need to take stock of what you are using your card for.
1. You are considering another debt consolidation.
Debt consolidation is a ‘big deal’. This is sacrificing your long term gains, such as owning your house or car, in order to cover the spending of days already passed. Alternately, it is taking a loan to minimise the damage caused by interest to cover money that’s already down the tube. If you are considering a ‘debt consolidation’ for the first time then a financial advisor, and the organisation’s offering the consolidation will tend to be gracious. However, if you are considering entering into consolidation ‘again’ within anything up to a five year period then it may not be so comfortable as you wait for the consultant and the financiers to assess your risk profile’.
Is this you?
If these top ten have you feeling a bit uncomfortable you are not alone. As of January, personal debt was almost 200% of discretionary income. There is ways to get help. A great place to start is ASIC’s Money Smart web site. They have a page here on managing debts. Getting advice sooner rather than later is a wise thing to do so don’t be afraid to reach out before the problem swallows you whole.
Disclaimer: We are not financial advisers. We have compiled this list based on our own personal insights and it is not a comprehensive list of when to seek financial advice. If you are experiencing financial pressure or hardship please seek professional advice or assistance. Many charitable organisations also provide basic financial and budgeting support at little or no cost.