The modern economy is largely based on debt and though the word itself has a negative connotation for most people, there is nothing wrong with borrowing responsibly to help you enjoy your life a little more. The problems arise when debt turns bad, which is an unfortunate situation that can be avoided if you look out for the tell-tale symptoms. Like your physical health, your financial health is something you need to keep a check on regularly to avoid unwanted problems. Here’s Asteria’s guide to the warning signs to look for when debt turns bad.
Your Credit Score Starts to Drop
This is usually something that people don’t even notice until they’ve already lost a significant number of points, but it is one of the first indicators that your debt is becoming unmanageable. Lenders pay attention to credit scores as a way of ascertaining if you can afford to pay off what you have borrowed without missing instalments or having to default. You can get a free credit report online from several companies, which is something we suggest doing if you want to avoid debt problems in the future.
Lenders Begin to offer you smaller amounts
The amount that lenders are willing to offer you is a good indicator of how well you’re doing financially. In the Philippines, lenders offer personal and salary loans of varying amounts and generally, if you are being offered smaller amounts, this means you aren’t considered to be a customer that could afford to use the services on offer without a certain amount of risk. The amount you can potentially borrow generally goes down when you already owe money to different lenders.
You are struggling to pay for the basics after repayments
If you find yourself in a position where you can’t afford to pay for food and other essentials once you have made your monthly repayments, this is a sure sign that your debt is getting out of control. This is the time for action and increasing your income or selling unwanted goods is generally the best approach to begin improving your situation. Some lenders in the Philippines can be surprisingly flexible, providing you keep in contact with them and let them know that you’re struggling. You may be able secure a loan repayment holiday or negotiate reduced payments until your financial situation improves.
You are losing sleep or becoming ill
When debt becomes a serious problem, it can impact on your physical health as well as your mental health. If you notice that you’re losing sleep or finding it difficult to stop worrying about money, it may be time to admit that you have a problem with managing your debts. Always make your health a priority and factor in how things like debt can impact on the rest of your life. Though money is important, getting a good night’s sleep and being able to live without constantly worrying where the next instalment is going to come from is, too. Never ignore debt when it gets to this stage as this will only make it worse.
You need to keep borrowing just pay off the interest
Getting trapped into a cycle of expensive borrowing, also known as the payday loan cycle, is something that happens to more people than you might think. With high interest rates and frequent penalty charges, it can be very easy to end up paying a great deal of money without really shifting the overall amount you owe. Always keep a track of what’s coming in and going out when you’re in debt and make a concerted effort to reduce your spending as much as possible if you do end up in this situation.
You are offered higher interest rates
One of the reasons many people get into difficult financial situations is borrowing from lenders who offer very high interest rates. Unfortunately, if you already owe a substantial amount of money, lenders are likely to charge you much higher interest rates than other customers. If you find yourself applying for loans and credit cards but can only find deals that are based on high interest rates, it may be time to start looking at ways to reduce your spending or seek help from a debt management service.
Arrears letters start to pile up
When lenders start to send out official demands for payments and notices of arrears, your situation is serious, and you will need to come up with a plan to manage your finances. One or two missed payments will affect your credit score negatively but providing you can prove that you won’t miss your instalments again, this usually recovers after a fairly short period of time. If you have more than a couple of missed payments, this is when lenders may enforce sanctions, penalties or even take legal action against you. Never ignore letters that are asking for payment, even if you can’t afford to give your creditors any money. Always communicate and explain your situation. Though they may not be able to help, most lenders appreciate this approach far more than being ignored entirely.
Legal action
When your creditors decide to take legal action against you, this can be a very serious situation. Nobody should find themselves in this position if they are careful with money, but life can throw up unexpected circumstances from time to time. Any threat of legal action should serve as a red flag and the final warning that you need to make serious changes to the way you’re spending and the way you’re living. Help is available and there are companies who can assist you in reaching an agreement, rather than having to go through the courts, however, once legal proceedings have been started, it may be too late.
Summary
Ultimately, keeping an eye on your finances and not ignoring early warning signs is the best way to avoid serious money problems. Look out for the signs and act as soon as you notice any of them. Today, we are encouraged to spend as much as we can but living within your means and using credit responsibly is rarely a message we hear. Loans and borrowing are not a bad thing, but always remember to be responsible and most of all, realistic about what you can genuinely afford to pay back.