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Far too often debt problems come crashing into our lives like a ton of bricks. When you're feeling the anxiety and pressure of debt it's not easy to see the real and not-so-immediate signs that financial ruin is on the horizon.

Most people will be driven to action by that final “last notice”, but by then it’s often too late to correct the long-standing credit problems that caused it to show up in the mail in the first place.

It’s easy to get behind in your bills: health problems, employment challenges and just keeping up with rising prices…but it’s important to take action sooner, rather than later, to avoid the worst consequences and to keep your options open.

If any of the 5 scenarios described below apply to you, you might be closer to bankruptcy than you think. We highly recommend that you to give us a call to begin working on your debt management plan as soon as possible.

1. The interest payments on your debt equal more than 30% of your after-tax income

Let’s consider what’s referred to as the “50/30/20 ratio,” an equation used to give a person an accurate representation of their financial position. On a monthly basis, according to this guideline, your income should be balanced, as follows:

• 50% of your after-tax income should cover your monthly necessities (accommodation, food, clothing, etc.).
• Small “wants”, not extravagant splurges, should account for no more than 30% of your after-tax income.
• The remaining 20% of your income should, at the very most, be dedicated to your savings account and debt repayments.

If your interest payments cost you more than 20% of your income, and especially if they exceed 30%, you could be in some serious financial trouble.

2. You’re starting to be late on your monthly payments

There’s one word that can absolutely ruin a person’s finances if they aren’t careful and aware: Interest. Loans, credit cards and lines of credit often come with hefty interest rates that are especially high if your credit rating is poor. If you skip a payment because some unexpected expense came up, or you simply didn’t have enough funds available, that interest is getting piled on top of the debt amount.

The more frequently you hold off on making payments, the more this interest can bury you. Which brings us to…

3. You’re stuck in the same place

If you’re on the right trajectory with your finances your money situation should be slowly improving with every month. If you see yourself treading water, with no real improvement in your debt levels, it’s another warning sign that things are getting into the red zone.

4. Your credit cards fund all emergencies, big or small

Let’s be clear for a moment: Credit cards aren’t tiny pocket-sized cards of evil. When managed responsibly, a credit card can actually contribute in a positive way to your credit rating! But it’s all too easy to get into trouble with credit cards. If you pull out the plastic every time you have a small emergency expense (simply because there’s no other money in your wallet to pay for it), it’s another red flag that your finances could be hanging on by a thread.

In addition, the purchases plus the interest rate on the card will rapidly add up. And if you have no other source of funds to repay that credit card bill, it’s not going to get paid, making your situation even worse.

5. You have no foreseeable ability to increase your monthly income in the next 3-6 months

A new job, a promotion or any other routine source of income is sure to help you in crawling out of debt. But it has to happen in the first place to make an impact. If you have no reason to expect that your monthly income could increase in the next 3-6 months, how can you reasonably expect your financial circumstances to improve? You can’t.

Bankruptcy is a scary word, one that affects far too many people worldwide. And because it can be hard to see such a dire financial situation dawning on you until it’s too late, it’s important that you keep a realistic eye on your situation. If you realize that one or more of the five scenarios apply to your life, it might not be too late! But some serious action needs to be taken: whether that means cutting up credit cards, increasing your monthly income somehow, trimming down on unnecessary expenses, like cable, or getting in touch with us for a free debt management consultation, you need to take action now!

We have a variety of debt solutions to offer, including alternatives to bankruptcy, and can help you choose the best option to get your debt under control and your life back on track.