14 Signs of a Credit Crisis

Financial Management by Trial & Error
Managing you credit isn't easy. Many people learn by trial and error - which can be painful and expensive. A credit crisis can be disaster for a household. It's a disaster that doesn't have to happen. With the right information and sound habits you can successfully manage your finances now and in the future.

Typical Credit Management
Most Americans are responsible in managing their credit privileges. If they get a little behind one month, they catch up the next; if they miscalculate on one purchase, they adjust on another.

Is Financial Disaster Looming?
Sometimes the usual adjustments don't seem to help. You can't catch up and the problem gets worse. Maybe there are unexpected expenses or you just miscalculate how much credit you can carry comfortably. It may take months to build into a serious problem that throws you into a credit crisis. If you're having a financial crisis rest assured you are not alone. An estimated five to seven million Americans are "financially overextended". Their personal, short term debts (not including mortgages or rent payments) exceed their annual incomes by 20%. And most often, it's not their fault - most people are over extended due to health problems or an unexpected loss of income from job loss or job change.

The cause of the crisis may be beyond your control but the solution isn't. There is no "quick fix" for a credit crisis. It takes hard work, hard choices and sometimes facing some unpleasant facts. It takes planning, discipline and commitment to get back on your financial feet and stay there.

How Do You Know if You're In Financial Trouble?
For most people it's not hard to recognize when the bills get bigger each month and the pool of funds available to pay them gets smaller. Or maybe you just sense that things are beginning to get out of hand.

14 Signs of a Credit Crisis
Use this quick checklist to help determine where you stand. If two or more from this list are true for you, you probably have a serious problem.

1. Your required monthly payments to your creditors are 20% or more of your take home income, not including your rent or mortgage payment.
2. You are using your savings for daily expenses or using cash advances from credit cards to pay other creditors and/or daily expenses.
3. You are paying the minimum amount, or less, due on your bills each month.
4. You don't know how much you owe.
5. You are getting calls or letters from your creditors about overdue bills.
6. You are having arguments at home about money problems.
7. You are working overtime or taking an extra job to keep up with your spending.
8. You are always late with bill payments.
9. You are denied credit.
10. Creditors are bringing lawsuits against you, reposing purchases or garnishing your wages.
11. You have to take out new loans to pay off old loans.
12. You have to skip payments, thus adding interest charges.
13. You are purchasing items on credit that you used to pay cash for.
14. You are paying bills with money intended for other items.

Rule of Thumb: If you are financially overextended, with debts you can't pay back within 6 - 12 months (not including your mortgage), then you are in a credit crisis.

It's not uncommon for even careful spenders to find themselves in debt these days.
Financial crisis can result from circumstances beyond your control.

• Maybe you took on several easy payment loans when you had a good income and then something in your life changed.
• You or someone in your family got sick, lost a job or took a pay cut.
• Child support just didn't arrive on time or ever.
• Unrealistic spending habits, such as trying to "keep up with the Joneses", overspending for holiday presents, or purchasing new furniture just because you have a new house.
• Maybe your desire the good things in life overshadowed the fact that the numbers just wouldn't add up.

Know Your Financial Picture
Every credit crisis is different. The first step to resolving the financial crisis is always facing the facts about how your credit crisis started and how it grew. You need to understand why you are in a credit crisis now so you can take control of it and prevent it from happening again.

Look At the Numbers
Know how much you owe. A surprising number of people don't know how much they owe - a sure sign of a credit problem. Prepare a financial statement showing:

• All your income
• All your expenses
• All your assets
• All your debts

Be complete and accurate. You can't plan to change things if you don't know the facts. Create a budget to help get your family finances back on track.

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