Many of the financial disasters that people experience today are because of their own actions or inaction on certain financial decisions in their lives. In some cases, this is because of ignorance of basic financial principals, which allows others to take advantage of them and drive them into financial distress. In other cases, it is because the person has been lax with their financial responsibilities and now it will take a lot more work to dig them out of the financial hole that they are in.
There are ways to recognize that you are heading for a financial disaster and once these signs have been recognized, aggressive steps will need to be taken to avoid the looming disaster. By learning these signs and the steps that can be taken to avoid the financial hardship that will result, you will increase your financial footing and reduce your risk of falling victim to a financial disaster in the future.
Tip #1 Have A Savings Account
One of the biggest indicators that a person is headed for a financial disaster is that they do not have any savings in the bank for a rainy day. With the days of easy credit and nearly everyone in the country having a credit card, many individuals have neglected to create a savings account, believing that they could tap into their credit at any given time to finance everything that they need. In today’s world of tightening lending standards and high prices, credit may not always be available to fund purchases or emergencies leaving the individual without options to get what they need.
Tip #2 Keep Careful Records And Review Them Regularly
Often the first signal of a looming financial disaster is a surprising credit card or bank statement and the individual does not know where the money has gone. Individuals that spend money without tracking where that money is going or without keeping a ledger of the money removed from a bank account is at great risk of going over their credit limit or their bank balance. Overlimit charges on either account can be quite expensive for each instance of going over the limit and the person’s credit score may be damaged as well.
Tip #3 Budget Money Wisely
The individuals that are at the greatest risk of a financial disaster are the individuals whose paycheck is spent before it ever reaches their hands. If the person has no discretionary income because all of their income is going toward bills, it is time to sit down and reevaluation which items are necessary and which items you can do without in order to save money each month.
Tip #4 Avoid Using Credit To Pay Other Creditors
Borrowing from one lender to pay another lender is a surefire way to invite a financial disaster. The balances on the accounts will not go down but the amount of interest owed will continue to rise, increasing the total amount owed. Eventually, the interest owed to each lender will max out the amount of available credit and the person will be in a much worse situation than if they had sacrificed to pay off one or both of the lenders in a timely manner.
Tip #5 Avoid Taking Out A Payday Loan At All Costs
Payday lenders charge individuals a triple digit interest rate on their short term loans and expect that those loans will be paid back within two weeks, which is often not long enough to find the extra money to pay off the loan. This typically results in the individual getting trapped into a cycle of debt with the payday lender, taking out new loans to pay off the old and being charged that triple digit interest rate for each loan. Many individuals have found that it can take months, and hundreds of dollars in interest payments, to break free of the payday lending trap.