If obtaining and using credit has been a problem for you the last thing you want to do now is slide back into financial trouble by using credit foolishly. To help you stay on track you will need to spot warning signs of improper credit use. Be sure you don’t make the same bad decisions again.
Here are some signs that you may be falling into credit trouble:
• Spending more than 20% of your take-home income on credit card bills.
• Borrowing money to pay off other debts.
• Paying your bills on time, but running out of cash between paychecks.
• Using your credit card to pay for necessities because you do not have the cash.
• Paying only the minimum payment on your credit cards; if you can’t double the minimum payment you have a problem.
• Refinancing a loan to get cash or because you need to reduce your payment. Refinancing to reduce a monthly payment because interest rates have declined can be a smart financial move. But if you are refinancing for extra cash because you are over-extended or because you can no longer make the current monthly payment, you are probably in trouble.
• Needing a co-signer may be a warning sign. If the lender requires a co-signer to make a loan creditworthy, you could be over-extended. However, if you need a co-signer because you lack a credit history, this is not necessarily a problem. Bottom line: make sure you understand why the lender wants a co-signer.
• Financing your vehicle for six or more years which means you may be paying off the loan longer than you drive the car. This probably means you are buying a more expensive car than you should. Although a longer loan period reduces your monthly payment, it increases the amount you pay over the full term of the loan. If you can afford a larger monthly payment, it will save you money in the long run.
• Consolidating your loans (including credit card debts), but not closing at least some of the accounts in which those loans originated. By keeping all of those accounts open you may be tempted to compound your problem by using them again and creating new debt.
• Counting on the next “big deal” to see you through your financial trouble; consider the big deal as icing on the cake rather than something to bail you out.
• Carrying more than three credit cards; there is no reason to have more than two or three credit cards.
• Waiting until near the end of your credit card’s grace period to pay, or requesting a higher credit limit. You want to pay early in the billing cycle to make sure you do not wind up with a late fee. Requesting a modestly higher limit may be okay if you have been living comfortably within your budget for some time, but you should make sure you aren’t just looking for a way to get quick gratification from impulse shopping when you would be better off building wealth.
• Hiding purchases from your family, or fighting with your spouse about how to deal with your financial situation. Financial problems and domestic problems often go hand-in-hand. The household budget must be a family decision, and you must stick to that budget once it is set.
• Depending on parents and friends to bail you out of financial squeezes.
To prevent a financial crisis, or to find a way out of an existing difficult personal financial situation, affordable and reliable help is only a phone call away. To schedule a confidential appointment, and be automatically connected to the NFCC Member Agency closest to you, call 800-388-2227, or en Espanol 80o-682-9832. For assistance online, go to www.DebtAdvice.org.
Drew Kessler is Vice President of Marketing & Communications with the National Foundation for Credit Counseling.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.