10 Signs You're Headed for a Financial Meltdown

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It's a common human trait to want to put your head in the sand and avoid facing the reality of your situation. But when it comes to financial matters, living beyond your means, incurring high levels of debt, and developing a bad credit profile can ruin more than just your bank account.

According to Corporation for Enterprise Development's 2013 Assets & Opportunity Scorecard, nearly half -- 43.9 percent -- of U.S. households are living on the edge of financial collapse, with almost no savings to support them in the event of a job loss or health crisis.

Here are some of the sobering findings from the CFED Scorecard:
  • Practically one-third (30.8 percent) of households don't have any savings account at all.
  • More than half (56.4 percent) of consumers have subprime credit rates, meaning they don't qualify for short-term credit at prime rates and are more likely to turn to a payday loan or auto-title loan.
  • Two out of every three college students graduate with student loan debt. The average debt load is $26,600.
How do you know if you're heading for a financial meltdown? Here are 10 warning signs.

10 Signs You're Headed for a Financial Meltdown
Financial planners suggest you have a minimum of three months of living expenses in a savings account, but some say 12 months is better. If you don't have any savings, you won't be able to pay your bills the minute your car breaks down, you have an unexpected trip to the emergency room, or you're unemployed. The problem can compound if you put those expenses on a high-interest-rate credit card and are unable to pay it off for a long time.
While an occasional slip-up in your checking account may not mean much, if you've paid overdraft fees more than once, you're clearly spending on the edge of what your paycheck can support.
Those "convenience" checks are something you should shred when you get them. You're simply expanding your debt level by paying a bill with a credit card, which will mean you'll pay hundreds or thousands of dollars in interest rather than actually paying that bill.
This move will definitely hurt your credit score: Using more than 25 to 30 percent of your credit card limit will lower your credit score a little, and going above it will drive it down fast. On top of that, you'll have to pay over-limit fees until you can get the balance back down, and you're likely to pay a higher interest rate on that credit card and on other future lines of credit.
Making the minimum payment on time every month won't hurt your credit score, but you'll never, ever make a dent in that credit card balance that way. If the minimum payment is all you can afford, then you've got some belt tightening to do.
If you're entering every possible lottery hoping for a big bonus, or counting on an inheritance, you're expecting something to solve your problems that may not come to pass. Put a plan into place to handle your own finances and then, if a windfall does come your way, you'll be in even better shape financially.
Your 401(k) is money that belongs to you, but it's meant to be there for your retirement years, not to pay your electric bill or your kid's orthodontist bills when you're in your 40s. Even if you somehow find a way to pay the money back, you're still going to be out on the interest earnings while that money was out of the account on top of any early withdrawal penalties and taxes you may have to pay.
Money is one of the main things couples fight about, but if you're hiding spending from each other or keeping the credit card bill out of sight, then you could be headed for a financial disaster, if not divorce court.
You may already be in a financial free fall if you've got debt collectors hounding you.
If any of these warning signs rings true, it's time to face facts and put yourself on the path to financial freedom. These free courses on DailyFinance will guide you through everything from setting goals you can achieve to getting out of debt and planning for retirement.

If your money woes are too overwhelming, contact a nonprofit credit counselor (find one at the National Foundation for Credit Counseling) who can help you develop a strategy to prevent your financial breakdown.
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