5 Signs That You’re Heading Toward Bankruptcy

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Are you dealing with too much credit card debt and struggling to pay your bills? Here are a few warning signs of serious financial trouble that could end with bankruptcy - and some ideas for how you can get financial help.

According to the Association of Independent Consumer Credit Counseling Agencies, here are five warning signs of bankruptcy: 

Carrying High Balances on Credit Cards

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The AICCCA recommends that people avoid carrying credit card balances that are more than 10 percent of their annual income. The median American household has an annual income of $52,100 per year – so if you have an average income, this means that your total credit card debt should ideally be less than $5,200. Any more than that, and you are putting yourself at risk to fail to repay your credit card bills – and if your credit card debt keeps growing (with interest, fees and additional spending), it’s going to get harder and harder to pay off. 

Not Enough Savings

How much money do you have in emergency savings? Most financial advisers recommend keeping 3-6 months’ worth of living expenses in a special, dedicated bank account. Your emergency savings needs to be able to cover your mortgage or rent, your food and gas and energy bills, and any other everyday living expenses in case you lose your job. If you have no savings, or have less than the recommended 3-6 months’ worth of cash in the bank, you are at greater risk of bankruptcy.

Buying Everyday Items With Your Credit Card

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Credit cards are meant to be a tool to manage your money by conveniently making payments and giving yourself a “short-term loan” where you can make a big purchase (car repairs, furniture, back-to-school items for your children) and then repay the debt in a short amount of time. If you’re using your credit cards to buy everyday essentials like groceries and prescription drugs, this can be a sign that you are living dangerously beyond your means and might be at risk for bankruptcy.

Only Paying Minimums

If you have $2,000 in credit card debt, you might only owe $20 or $25 per month as a “minimum” payment – but only making minimum payments will keep you in credit card debt for a long time. If you want to get out of credit card debt, you need to pay much more than the minimum. It’s OK to carry a balance on your credit card for a few months if times are tough (you’ll pay extra interest for the privilege), but if your money situation is so tight that you cannot afford to pay more than the minimum on your credit card, you might be heading for financial disaster.

Can’t Afford to Lose Your Job

What would happen to your family if you lost your job tomorrow, or got in a car accident and were unable to work? If you have no emergency savings, if your credit cards are maxed out, if you are struggling from paycheck to paycheck, then you are vulnerable to declaring bankruptcy.

Fortunately, even if you are in bad financial shape, there is help available to evaluate your options and find ways to get out of debt without declaring bankruptcy. Declaring bankruptcy is a serious financial move with long-term consequences that can make it very difficult and expensive to get a loan, buy a car or buy a house for years to come. Talk to a consumer credit counselor or look into your options for working with a debt settlement firm.