It’s so important to be able to recognize the signs of financial trouble. If you can tell when you’re heading for disaster, you can stop what you’re doing and prevent something terrible from happening.

A paycheck to paycheck lifestyle

Living paycheck to paycheck can seem ok as long as all your expenses are being paid each month. But it’s like walking on a tight rope: one false move and you could fall to financial ruin. For example, if you need a major car repair or a major appliance needs to be replaced, how will you pay for it? Living paycheck to paycheck isn’t the worst thing for your finances, but it’s risky.

Frequent overdrafts

Continually overdrafting your checking account may mean that you’re mismanaging your money or that you’re not making enough money to maintain your lifestyle. Repeat overdraft fees stress your budget even more. To avoid overdraft fees, examine your monthly spending to see what you can do differently, e.g. spend less or bring in more money.

Borrowing payday loans

The moment you consider taking out a payday loan or cash advance is a sign that you’re in trouble. A payday loan may seem like a quick fix to your current financial troubles, but it’s really just an expensive, extremely temporary cover-up. Payday loans are difficult to repay. Many borrowers end up paying hundreds of dollars in fees before you can ever get out of the hole created. Avoid this trap at all costs.

More credit card spending

An increase in your credit card usage can mean trouble, especially if you’re not paying your credit card bill in full each month. Continue your spending spree and you’ll eventually run out of room on your credit cards. Once you’re used to spending a certain amount each month, it’s difficult to just stop. On top of that, you’ll have to start paying back your credit card and the high minimum payments could be tough to deal with.

A more serious sign of financial trouble is using your credit card to pay bills. If this is a new problem, try to identify what changed in your finances that led to your inability to afford your payments. Look for expenses that you can decrease so you can better afford to pay your bills without relying on credit cards.

Delinquencies on accounts

Falling behind on your payments, especially with several accounts, is serious. Once you get behind, it’s difficult to catch up again. Late fees are added to your account and the minimum payment needed to bring your account current gets larger each month. After several months, your accounts may be sent to a collection agency.

Turning your situation around at this point is hard, but not impossible. First, you have to make sure you have enough money to pay all your expenses and maybe a little more. Then, contact your billers and creditors one by one to see what it will take to catch up again. It may require you to scale back on your expenses or even get a part-time job to supplement your income.

Job loss

If you unexpectedly lose your job and you don’t have money in an emergency fund, you could be headed for a difficult time. You may qualify for unemployment benefits, but that will only be a fraction of your previous salary. You’ll need to drastically decrease your expenses immediately and try to get a new job as quickly as possible.

The things that indicate financial problems aren't always easy to recognize. Or, if you recognize them, you may not make immediate changes, assuming things will get better. Financial problems won’t correct themselves. Improving your financial situation requires you to take action: figuring out the cause of the problem and then taking steps to correct it.