Are you managing your debt? Or is it managing you? If you're stuck in a money quicksand trap, you may not even realize at first that you're in a financial predicament, especially if you're sinking slowly and have been poorly managing your cash for a long time.
But if you suspect your debt is a disaster in the making, there's no need to wait and see if your financial life will someday implode. If you're pushing your finances to the limit, the signs are already there that you're overextended. Just look for them. And if you spot one, don't ignore it. Here are five of the biggest clues that trouble is coming.
1. You're spending more on your credit card than you're paying off. According to the National Foundation for Credit Counseling's 2014 Financial Literacy Survey, which surveyed 2,016 adults last March, about 1 in 3 U.S. adults admitted to carrying credit card debt from month to month. Approximately 15 percent of adults -- more than 35 million -- roll over $2,500 on credit cards from month to month.
Kristin Vincenzo, a public relations professional in New York City, says she can relate. "I have been in situations where I reach the end of the month, I am cash poor, and so I start putting things on my credit card. Not big things, but little things that add up," Vincenzo says. "It's a minor way of being overextended, but because it's minor, my credit card bill would slowly grow and I would find myself in an increasingly deeper hole."
Vincenzo, 44, says she occasionally runs into that problem now, but the pattern was consistent throughout her 20s and early 30s, and it started, as it does for so many adults, after she graduated from college.
2. You're having trouble paying bills. It may be an obvious sign that there's a problem, but you still may not see it as a true red flag if you've been having trouble paying bills for a while. You may just see it as a sign that your salary is pitiful and your boss is a skinflint. That may be true enough, and if you aren't paying your bills on time, you certainly aren't alone: Twenty-four percent of Americans, according to the aforementioned survey, are constantly late with their bills.
Still, if you're frequently paying late fees or getting burned by your bank's overdraft fees, that's generally a sign that you need to get your financial house in order before an emergency hits. (Surprise! Your car's dead!) Or before you buy anything expensive or take on new monthly expenses, like getting a pricier monthly phone plan.
3. Your retirement isn't being properly funded. It may not be troubling your bank account now, but it is a huge red flag for your future, says Michael Warr, a financial advisor and executive director at the WHMZ Group at Morgan Stanley in Tuscaloosa, Alabama. He says if your company has a retirement plan and you aren't putting money in, especially if the company matches funds, you're creating a future problem for yourself.
"Most companies place the burden of savings on the individual and no longer offer pensions," Warr says.
Of course, your argument for not putting money toward your retirement is that you're having trouble keeping up with your current bills or you're navigating unexpected expenses such as medical problems -- but that's nonetheless a sign that not only are you financially overextended now, things won't improve when you're older.
4. You're buying merchandise without putting much down. Have you ever driven a car away from a dealership without putting any money down or furnished your home while paying absolutely nothing? That could be a problem.
"Electing 100-percent financing -- no down payment -- and [the] longest terms available on non-appreciating assets is an obvious red flag," Warr says.
It may seem smart to leave a car lot or store with what you want and no financial outlay, but you're going to have to make those payments eventually.
If there's a good reason you didn't make the payments -- maybe there's an interest-free window, and you know you can make the payments within the period, easily -- it may not be an automatic red flag. But if this is an ongoing routine, where you're constantly making purchases only to writhe in financial pain later, courtesy of high-interest payments, then, yes, you're overextended.
5. You've created opportunities that could make you overextended. If you have a lot credit cards or lines of credit you rarely use, you could, in theory, end up spending a lot of money and getting yourself into trouble that way, but having those lines open isn't itself a bad sign. It's a sign that you have good credit, and your creditors trust you. Still, it's good to remember that if you aren't monitoring yourself, you could ultimately max out and find yourself buried in credit card debt.
At least in that scenario, you have control over what may or may not happen. Some homeowners, however, put themselves at risk for becoming overextended when they get an adjustable rate mortgage or a home equity line of credit in which the interest rate "may float with some kind of index like the prime rate or [London Interbank Offered Rate]," says David Reiss, professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School in Brooklyn, New York.
"So if interest rates rise dramatically, the home equity line of credit can become unaffordable," he says. "Interest rates have been very low for some time, so homeowners are not focusing on this risk, but if they were to rise -- and they can rise suddenly -- homeowners may face a rude awakening."
In which case, you may want to refinance and position yourself to avoid becoming financially overextended if the interest rates someday jump. Because what happens to anything when it's stretched beyond its limits? It -- or you -- will snap.