Five early warning signs of financial trouble

01 February 2023

Money troubles can creep up you. One moment everything’s fine. Then maybe you take out a credit card. Then another. And then even another.

Before long, the debt has snowballed, and multiple creditors are chasing you for payments, possibly covering little more than the interest, that you just can’t afford.

As the cost of living crisis continues to bite, more people than ever in the UK are at risk of going through these sorts of debt problems. In this guide we outline the first signs that indicate it’s time to ask for help…

Increasing use of credit

Credit cards can be extremely useful, but you shouldn’t be relying on them for everyday use.

And the same goes for your overdraft – it’s normal to dip in there every now and again but you shouldn’t need to rely on it month after month, not least because bank charges for these facilities have been steadily rising in recent years.

The problem really escalates when you start using credit options to pay bills like rent or energy costs. This might feel like a short-term solution, but it isn’t a sustainable one – and without intervention and a proper plan in place, this debt will soon spiral.

At the same time, if you have lots of debt spread across multiple cards and accounts, it’s easy to lose track of just how much you owe, the dates your payments are due, and when any offers such as interest-free spending or balance transfers expire.

Paying minimum amounts

When you’re paying off your credit cards, the monthly minimum payment option might feel tempting, but it’ll only keep you in debt longer.

It’s designed to be flexible –but if you’re regularly just chipping away at your debt then interest will mount, and your debt will quickly become unmanageable. Balance transfer options can help, but that won’t make the debt disappear.

It’s a vicious cycle – you take out a credit card with 12 months of 0% spending, max it out and begin paying off the minimum amount each month. Then the 12 months comes to an end, and you use a 0% balance transfer to move the debt, but you still only pay off the monthly minimum and the debt builds. Balance transfers often incur a fee, which on a large debt can be expensive.

A better solution is to ask for help from a qualified, regulated advisor about putting a plan in place to manage and resolve your debts.

Late payment of bills

While only paying the minimum due each month can lead to problems, late payments and missing bills all together is a more serious issue. A string of missed payments can deliver a huge knock to your credit score, which will only lead to bigger issues as you’ll be offered higher interest rates and lower credit limits on any future credit cards or loans.

It’s important to understand why you’re leaving bills unpaid – do you have too many to keep track of, or do you not have enough cash flow to cover them when they fall due? If it’s the latter, it’s time to get some professional advice.

Lack of savings

Emergencies can crop up at any time – maybe the washing machine breaks down, or your car needs new tyres. So, if at the end of the month there’s nothing left in your pay packet to go towards savings, this could lead to future problems.

Savings can fluctuate, and it’s OK to have some months where you don’t save anything at all, but if you’re never able to put money away then it’s worth considering why. Are you spending more than you earn? Are big chunks of your salary going towards repaying existing debt?

Taking a look at what’s coming in and what’s going out every month will give you a better overview of your position, and if there’s nowhere you can cut back then it might be time to seek help.

Stress

Your personal finances shouldn’t be interfering with your personal life.

If you’re scared to open your post or your online banking, you argue about money often with your loved ones, and you’re anxious about or losing sleep over your concerns, then these are all signs that your money worries have gone too far.

You don’t want to be in the dark – or in denial – about the size of your debt or the state of your finances. Seeking help early, before the problem has a chance to spiral out of control, will give you more time and more options than if you’d waited.

It’s incredibly hard to talk about your money worries, but being brave and starting that conversation will lead to better outcomes than if you’d delayed until the problem worsened.

For more information, download our guide to dealing with money worries