Recognizing The Red Flags That Lead to Debt

When you’re paying off your student loans, or paying off any debt for that matter, it’s a great idea to know where you stand financially. Specifically, it’s a great idea to recognize any warning signs that might foretell a personal economic plunge that may take years to recover from. For example, in the student loan repayment realm, three unopened invoices from your lender lying in a pile on your desk is a big red f lag that you’re not keeping up with your loan payments. Here are some common financial red f lags to look for in your busy life:

• Your bank account is consistently overdrawn.

If you keep getting those thin envelopes in the mail from your bank telling you that your checking account is overdrawn, it’s time to regroup and find out why you’re not keeping up.

Tip: Ask your bank for overdraw protection against your checking account. For a few bucks each month, most banks will be happy to comply.

• You are only able to make the minimum monthly payments on your credit cards.

A biggie. If you can’t maintain a clean credit card bill each month then you’re staring at big trouble down the road. At 15 percent or so interest, credit card companies clean up when you pay only the bare minimum of your monthly bill. At those rates, that new jacket you bought for $80 three months ago can cost you $350 in a few months if you don’t pay your credit card bill in full.

Tip: If you have multiple credit cards, cut all of them up save one. And use that only for emergencies.

• You and your partner, if you have one, are arguing about money.

Money is an emotional issue, a power struggle sometimes between couples who usually have different ideas of how cash should be handled. If you and your spouse or partner are haggling over bills more than usual, it’s probably because your bills are higher than usual.

Tip: Agree on a budget and a spending allowance, if necessary, then stick to it.

• Your savings account is busted.

Money experts agree that a savings reserve of six months of your annual salary is mandatory to ride out rough economic times, like the loss of a job or a serious illness. If you don’t have any money at all in your savings account, it’s time to reexamine your budget and see where your money is going every month.

Tip: When you get paid, pay yourself first; take 10 percent of your check and stash it in a savings or money market account.

• You are juggling your monthly bill payments.

If you’re applying selective reasoning to your monthly bill payments (“Hmmm, we’ll pay the phone bill this month, but not the dog walker.”) then you’re in over your head financially.

Tip: Lose the dog walker and any other luxury item on your “to pay” list. In tough times stick to the staples: home, heat, groceries, and electricity. You might not think about it, but 20 years ago, nobody had an Internet bill or a cell phone bill. But you probably do now.