“Everyone runs up a little credit card debt, right?” That’s what many people tell themselves to justify carrying excessive debit. But the fact is undisciplined spending and poor credit management are serious problems that must be addressed. The Pennsylvania Institute of Certified Public Accountants provides these following four signs that show your debt and spending are out of control, and offers advice on what to do if they are.
You pay for everything with credit cards
Once upon a time you used cash to buy groceries, gas, or pick up a quick lunch, but now you whip out the credit card for virtually all your regular purchases. If this sounds familiar, you are probably either in financial trouble or on the verge of it. CPAs warn that the credit card balances you are building will come back to haunt you. If you already carry a balance on your card, new purchases will likely hike up the amount of interest you’ll be charged each month. Keep that in mind when you’re making a purchase, and it may help change your habits. If you’re relying on credit because you don’t have available cash, it’s time to take a realistic look at your budget and consider necessary changes.
You’re adding new accounts
What happens if you can’t pay your credit card or other bills? Some people open new accounts and use balance transfers or cash advances to make required payments on existing debt. They might also add a new account if their old cards have reached their credit limits. This financial sleight-of-hand solves an immediate problem, but it also digs you deeper into debt. If you’re in this position, it’s a sure sign that you need to get a handle on your debt and alter your spending habits.
Your debt’s getting bigger
Here’s a sad fact. Even if you don’t keep spending, outstanding credit card balances will keep growing if all you make are the minimum payments every month. That’s because the interest you owe on your outstanding debt is lumped in with your balance. You then have to pay interest not only on your past purchases but also on that added interest.
You’re missing payments or avoiding bills
You have a stack of unpaid bills that keeps growing. You screen calls so you don’t have to talk to angry bill collectors. If you’re in this situation, you won’t be able to sidestep the problem forever. CPAs recommend instead that you get a realistic sense of where you stand financially and that you begin contacting creditors, cutting spending, or taking other necessary steps to get your financial life back on track. It’s always a good idea to contact your creditors when you can’t make a payment and ask about temporary reduced payment plans, payment moratoriums or other options. This step could help you prevent a bad credit rating or cancelled account.
Financial literacy resources
Want more information on debt management? The CPA profession’s 360 Degrees of Financial Literacy campaign (www.360degreesoffinancialliteracy.org) offers a wide range of resources relating to common financial planning issues, including debt problems. Tools on the site include a calculator that determines the benefits of accelerating your debt payoff and a glossary of credit management terms.
Your local CPA can help
You can’t beat the value of the personal advice you receive when you consult your local CPA. Remember to turn to him or her with all your financial questions.
For more information, visit PICPA’s CPA Locator at www.ineedacpa.org.
(The Money Management columns are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants, as part of the profession’s nationwide 360 Degrees of Financial Literacy program.)