The most effective way to handle evolving credit problems is to recognize the danger signals, not ignore them:
1) When your debts, including your mortgage (if you have one), are more than 40% of your monthly income.
2) You’re making only the minimum monthly payment on your credit cards.
3) You’re skipping some payments entirely every month.
4) You’ve borrowed up to your credit limit on one or more of your revolving credit accounts.
5) You’re using savings or investment accounts to pay your monthly bills.
6) You’re putting off essential medical or dental treatment.
Losing your job, coping with serious illness, and going through a divorce can threaten your economic security and undermine your ability to keep up with your credit obligations. So can spending more than you can comfortably afford to repay. While you may be able to juggle creditors for a time, sooner or later, you could find yourself in serious trouble.
One preventive measure is to build an emergency fund, accumulating at least six months of living expenses in readily accessible accounts. Some combination of relatively short-term certificates of deposit (CDs) and US Treasury bills will generally work. The goal is not to touch the money except in a real emergency. Ideally it will last long enough to get you back on your financial feet.
Contributions from the book Credit & Borrowing in this press release are used with permission from Light Bulb Press.