In this series I am covering the 24 tell-tale signs that you could be in financial trouble. Over the next few weeks I will be presenting these signs, how to identify them and tips on how to address the issue.
One sure way to find yourself in a dangerous financial situation is to pay for necessities such as utility bills and groceries with a credit card or cash advance because you don’t have the cash on hand. This becomes especially troublesome with the ease of getting a cash advance on your card. It may seem like a handy feature that you intend to pay off once you have the money but all too often that doesn’t happen. Then the cash advance interest rates can be substantially higher than a regular charge.
Using credit for necessities is a slippery slope. Your basic requirements in life such as food, water, housing and the like should be paid for by money provided though your income. If your income cannot support these basics you either have a significant spending problem or a lack of sufficient income.
If the money isn’t available to pay for groceries how does buying them on credit help? It can put food on the table for the time being but you still do not have cash. On top of that you have now just increased your credit card balance, the amount of interest that will be charged and the minimum payment amount. As you can see this is not a long-term solution. Using credit only further compounds the lack of money and puts you in an even worse financial situation.
What Can You Do?
If you are in a situation where you need to use credit to pay some basic bills it is time to seriously look at your situation. Is your spending under control and you feel like you don’t have enough income? If so it is time to see if you are living above your means. This could mean your rent is too high, you might have expensive optional utilities or even own a home when you probably can’t afford it. Whatever the reason you need to make a decision: earn more income or change your lifestyle to match your current income.
On the other hand maybe it is substantial debt or simply out of control spending that is forcing you to use credit to pay the bills. In this situation it is time to take a look at tracking expenses and creating a budget. Increasing income may help but it does not solve the problem of excess expenses.
There are an infinite number of reasons why we fall short with our money and the only way to address them are to realize what the problem is and work towards improving the situation. Using credit to pay your basic bills will only help you in the very short-term and long-term it is just a compounding problem. Without addressing the reasons why you’re in that situation will ultimately snowball out of control.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.