One of the common misunderstandings among people is the fact that they judge their financial conditions according to the salary they earn. However, a good income does not guarantee a firm financial strength. Recession left most of the American households looking to their savings and scrapping off their credit scores. The post-recession economic condition has improved significantly, but millions of households are facing a financial disaster.
Do you put your head in the sand when faced with a financial disaster? When it comes to a financial crisis, people with high levels of accumulated debt, and low credit score ruin much more than their bank account. People often assume that everything is working out fine and they do not need to worry about their finances.
According to the Corporation for Enterprise Development’s Asset and Opportunity Scorecard, nearly 132.1 million people are lacking any emergency funds for accidents, health emergencies, and similar incident. Some other important findings of the report are:
- Nearly 30.8 percent households in America do not maintain or have a savings account.
- More than 25 percent households are having less than 3 months of savings.
- Nearly half of the consumers (56.4 percent) are not eligible for short-term loans at prime rates.
- The average debt on college students is $26,600 and two out of every three students have college debt.
5 Signs to Identify a Financial Disaster
According to experts, it is possible to identify a financial disaster before it happens and you need to evaluate your personal finance on a regular basis. Here are some quick tips to understand your investments and dodge any financial crisis in the process.
- Spending more than the credit limit: One of the most important credit score busters includes overcharging your credit card, and it is a common practice among customers. People using nearly 25 to 30 percent of their credit limit face minimum credit score damage as compared to those using more than 40 percent. The later half is liable to higher over-limit fees and higher interest rate in future.
- Zero balance in your savings account: It is optimal to have a minimum of three months savings in your account. If there is no money in your savings account, you might find it difficult to pay for an emergency care repair, medical emergency, and loss of job. People using credit cards for these problems might end up paying nearly as much interest as the amount borrowed.
- Borrowing from retirement funds (401(k)) for bill payments: Your 401(k) contributions are meant for your retired life rather than using it for clearing up bills. Even if you are planning to put that money back in your retirement fund, you are going to lose interest money. It even makes the income liable to taxes and any withdrawal penalties associated with it.
- Making minimum credit card payment: If you are making minimum credit card bill payment on time every month, your credit score will float smooth, but you will never be able to get rid of that credit card debt. If you are unable to make the complete bill payment, it is time to work on your monthly income.
- You fight with your spouse over money and have financial secrets: It is common to have those occasional fights with your spouse over debt. However, if you are fighting with your spouse on a regular basis, it might be a sign that you do not have sufficient disposable income for your monthly expenditures. An unsustainable financial condition is another common reason of these fights. It is even worse to hide your credit card bill from your spouse, and indicates that you might be headed to a financial disaster.
Financial disasters manifest into bigger problems if not dealt on time. If you are facing any of these signs in your life, it is time to correct your path for a health financial life. You can seek help from a non-profit credit counselor and never hide anything from your credit strategist.