Spot the Warning Signs of Debt: Tips to Avoid a Financial Disaster

  • 5 min read

Financial troubles and physical illnesses have a few things in common. (First and foremost, we all want to avoid them both!) One important similarity is the concept of early diagnosis and treatment. When diseases are caught early enough, they can often be treated or cured. The same truth applies to financial issues – especially debt. If someone can spot the onset of a problem before it gets too severe, the solutions can be much easier to nail down and execute.

While many factors can lead to financial woes – everything from unemployment to emergency car repairs — there are a few common contributors to financial problems that can easily be avoided. These are personal factors that we are entirely in control of, and they include ideas like awareness and accountability.

When it comes to spotting warning signs before it’s too late, awareness is really the key element. One must turn a keen eye to their own financial situation and examine it objectively and without bias or emotion. How much debt are you really in?

How many frivolous things can you really afford? It’s far too easy to look the other way, but that’s when the real danger is given the opportunity to sneak up on you!

Once you’ve decided to do a little honest self-examination, you can begin by looking for the biggest debt warning signs:

  • Depending on others (friends and family, for instance) to help pay for things.
  • Borrowing money from one lender to pay off debt from another.
  • A poor credit rating, often denoted by the need for a cosigner to open new lines of credit.
  • Too many credit cards. Most people don’t need more than two.
  • Hiding purchases, lying about spending money, or fighting with other people in the household about finances.
  • Paying only the minimum payments on credit cards.
  • Running out of money between paychecks (and living “hand-to-mouth.”)

Last, but not least, if your instincts are telling you that you’re struggling with financial problems, then you probably are! Don’t ignore these feelings, and if you find that your life is marked with the above warning signs, don’t hesitate to take action. There’s absolutely no reason to wait until the house of cards falls down to start taking action.

Be proactive, and you may find that a more stable, less stressful financial future is closer than you think.

Debt Secrets that Could Be Hurting Your Finances

Say what you will about old wives’ tales, but they have an uncanny knack for sticking around. Stories about chewing gum staying in your digestive tract for 20 years are one thing, but the fact that there are numerous financial myths in circulation are a whole different animal: money myths can hurt your bank account or your credit score.

Take note of the following misconceptions and adjust your level of belief accordingly!

Myth 1. You know your credit score.

While it’s entirely possible to up your credit score using any number of services, you’re only getting a small piece of the total picture. First of all, you’re probably just getting one credit score from one bureau, not all three.

To make things even more confusing, even if you can get hold of your FICO score, it’s not going to be much help. A FICO score is actually kind of fluid, and it can vary depending on which agency pulls it and what type of credit they’re trying to approve you for.

Myth 2. Store credit cards are a great way to get a deal.

Retailer credit cards are really good at looking like a fantastic deal, but many are a wolf in sheep’s clothing. They will typically lure you in with low interest rates and no fees, but beware of these terms being part of a promotional offer.

Once that offer is over, these cards will usually revert to a staggering interest rate…and don’t be shocked when they bill you retroactively for interest on the entire starting balance!

Myth 3. Put as much down on a house as possible…or better yet, pay cash!

The idea of paying cash for a home has become pretty popular, but many buyers are overlooking the downsides and focusing entirely on the whole “no mortgage to worry about” part of the deal. The truth is that a mortgage can actually make you money over time.

Since the interest is tax deductible, prudent investment can mean the difference between an immense opportunity cost and turning a profit.

Myth 4. A late credit card payment will ravage your credit rating.

Right up front, let’s clarify: this is not an excuse to put off your credit card payment. Think of it only as a bit of relief if you’re a couple of days behind. Don’t panic, because late credit card payments are generally not reported until they’re 30-days delinquent.

Myth 5. Debt management doesn’t work.

The concept of debt management suffers from a sort of tug-of-war. Some say it’s amazing, while others say it doesn’t work at all. The truth is that it works extremely well…in certain cases. Debt management is not for everyone, because everyone’s situation is unique. That is why a credit counsellor or consultant should be called in to analyze the details before making any decisions.

When used by a qualifying candidate, debt management can be extremely effective. (Of course, the candidate will need to put forth their own effort and commitment to ensure success, but that’s not really a flaw of the system.)

Christopher - BSc, MBA

With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.