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5 signs your finances are on the brink

If at least 2 of these red flags apply to your financial situation, you could be heading toward big trouble.

By MSN Money Partner Jan 18, 2012 6:27PM

This post comes from Brian O'Connell at partner site MainStreet.


MainStreet on MSN MoneyWhile economies can collapse seemingly without warning, a personal debt crisis doesn't happen overnight.


Most of the time any foreclosure or a personal bankruptcy is years in the making. Unfortunately though, along the way people often don't see the warning signs that could stop -- or at least slow down -- the problem before it hits critical mass.


According to the Federal Reserve Bank of New York, as of the fourth quarter of 2010 approximately 2.8 million U.S. homes had gone through foreclosure, and an additional 2 million homes were in the process. Bankruptcy numbers aren't much better, either, even if they are trending in the right direction. The American Bankruptcy Institute reports that the total number of U.S. bankruptcies filed from September 2010 to September 2011 was 1.47 million, down from 1.60 million in the previous year. Post continues below.

How can you avoid become a statistic in either group? With a built-in radar system that warns you when your financial picture is starting to spin out of control. Here are five red flags that you can use to build that warning system:


You keep overdrawing your checking account. A bank checking account is like the proverbial canary in the coal mine when it comes to your personal financial picture. If you're constantly overdrawing it -- even once in a month is a serious sign if it happens repeatedly -- you need to get your financial act together. You're likely spending too much money and possibly accumulating too much debt, or your income simply does not meet your expenses, in which case there are other forms of assistance to consider. Fix the problem by building a monthly budget and sticking to it.


Your credit card payments are dwindling. If you can afford to make only the minimum payments on your monthly credit card bill (if that), you've got a borrowing problem. A credit card user keeps paying interest on that big outstanding balance, and within a few months a $5,000 credit card tab can climb to $7,500. The solution? Use your card less (ideally, only for emergencies) and pay at least twice your minimum payment. That should keep you out of credit card trouble.


Your emergency fund reads "zero." If you don't have an emergency fund, or the one you have is on life support, you're courting big financial trouble. Experts historically say you should have at least six months' worth of income stashed away in a savings fund, but it's better to aim even higher. Build a 12-month cushion in case you lose your job or suffer from a major illness or injury. Most bankruptcies occur after a job loss or a serious health issue, so a proper emergency fund can save the day in that regard.


You have to choose which bills to pay. If two bills come in the mail and you can't afford to pay both, you're overstretched financially. If this happens once, no worries -- it's a tough economy, and most people have problems with a bill at one time or another. But if it's a monthly occurrence, then you're in red-flag territory and need to revisit that budget and see where you can cut some meat off the bone (or take a second job to earn more income).


Your credit score is below 620. If your FICO score is heading south faster than a Canada goose in December, that's obviously a big red flag. The lower your score, the more expensive it becomes for you to get credit. (Creditors charge higher interest to give credit to consumers with low credit scores -- if they grant them loans at all.) Read your credit report at least twice a year and directly address any problems right away.


If you find that you meet at least two of these red flags, you could be heading toward financial peril. But if you pay attention to the warning signs, you could help to avoid or reduce the impact of a potential financial Armageddon.


More on MainStreet and MSN Money:

Jan 30, 2012 1:10PM
Here we go again, someone telling us  what we already know because we as Americans are inept at taking care of ourselves physically,emotionally and financially.  I was fine financially until the government got involved in my retirement.  I was also fine until they got involved in my job and my mortgage. The government can't even run the DMV efficiently or effectivly and they want to run everything!!!!!!!!!!!!!!!!Everyone wants to blame their financial mess on the government and rightly so.  I often  wonder why noone in our government seems to be having financial difficlties like us 'lil people'.  Let's see how many government elite have had their houses foreclosed upon and why can't they or don't they lose their jobs when they screw up time after time?  Give the government a taste of its own medicine and I bet things would be a bit diffetrent
Jan 30, 2012 12:00PM

This article states the obvious... we already know we're in financial harm's way... but most of us are trying, contrary to popular belief.  I'm applying like mad for more work to augment the one that doesn't pay the bills...  hire me and give me a chance, You can overcome!  Don't get discouraged, and don't give up.  I think Churchill said, if you're going through hell, keep going!  (we'll get out of it eventually if we keep moving)

Jan 30, 2012 1:58PM

I was thinking more along the lines of these five signs:


1.  You don't have a job

2.  Any "benefits" available are played out

3.  Your family no longer speaks to you about money

4.  Food is being obtained from your favorite restaraunt dumpster


And finally,


5.  The Fed Chairman is requesting advice from you!

Jan 30, 2012 10:15AM
ROTFLOL!!! I don't need five signs.... I already know. You forgot some of the most important signs:
  •  You were laid off, have been desperately looking for a job, and finally were able to find a part-time job making about 1/4 of what you used to make.
  • You had to pull money out of your 401k just to have food and now the government is penalizing  you.
  • The Publicants are in control and refuse to close the tax loop-holes only the wealthy (themselves) get to enjoy.
Oh, and to JG - I don't have huge credit card debt. I have worked my tail off my entire life and still, with the policies of "Reganomics" and the Publicants, I have nothing in my tin can - NOTHING has trickled my way... well, except the stuff that rolls down hill.

Jan 30, 2012 10:53AM
@ Oregon Equestrian- so whats the sixth sign? all you did was complain about "stupid Americans" but you never made a valid point or even talk about your "6th sign", you simply explained how your selling your family's horse ranch- is that the 6th sign? im sorry you feel that america has caused the problem. can you explain why Europe is experiencing such tough economical times? with countries like Greece and Ireland on the brink of financial collapse it seems rather strange to me that this was caused because of "stupid Americans". im not debating nor denying, in fact i would agree that our GLOBAL financial issues have been caused  by greed, deception, and complicity, but to say its because of "stupid Americans" is ignorant, if you asked me i would say its because of stupid people making stupid decisions. so in conclusion please sell your horse ranch and leave america because america doesn't want people like you anyway! 
Jan 30, 2012 8:22AM
The overdrafting your checking account is a big one, but it is also very difficult to correct.  Really, the article makes it sound so easy to stop, but once you are hitting the overdraft, the high fees make it really difficult to get out.  Most of the other options don't help either.  The financial system we have is designed to keep people down once they make a mistake or two... it is VERY unforgiving!
Feb 9, 2012 10:35PM
Open-mouthed I always watch my debt and always pay bills as soon as I get them in the mail box. I never have any delution of getting away without paying it off. My bills are my priority.
Feb 10, 2012 12:31PM
How can you tell if you're financially on the brink?  You have to rely on an article from MSN to tell you that you're financially on the brink.
Feb 9, 2012 9:11PM
The one that pisses me off is, I'm supposed to have a year's worth of cash just sitting around REALLY AND I'm supposed to fund my 401k AND I'm supposed to pay all the bills. Where is all this money coming from we're not talking manna from heaven here!
Feb 10, 2012 11:40AM
The author has a firm grasp of the blatantly obvious.
Jan 30, 2012 10:42AM
Get your head down,  people.  This mess is just warming up.
Put up a profile and you'll get hit,  and I mean hit hard.
We are in an abeyance period when things seem like they might conceivably start going ok.  But don't be fooled.
This corrupt government answers to the money and the superpac corporations that they are selling out to.  Meanwhile,  all we get is more smooth talk from the prez,  and no real action.
You think your single vote means anything after they have it?  NO!  But the bucks they sold their soul for to get into office has to be repaid in endless **** kissings to the anointed few,  the landed gentry,  the heartless greedy biz jocks.
None of this is going to get better until we get serious about getting the money out of politics.
Meanwhile dream on about a good job.  Even if you could get one,  you would be cut in pay so badly,  you might have a problem paying even the most ordinary costs of living.
 Look for another country to migrate to when necessary.

Jan 30, 2012 11:40AM
As long as our totally corrupted 'elected officials' continue to let US job be offshored and allow the TBTF bank masters to do whatever they want without repercussions this isn't over by a long shot.
Feb 10, 2012 10:54AM

Good article because the facts are the facts.  Yes the cost of everything under the sun has gone up and way faster than wages but that doesn't mean that people need to go out and buy new new and more new stuff.  I remember not having a cell phone until I was in my 20's and they had been around a while.  I just didn't want the added bill.  Now I only have a cell phone and no landline and it is 3 times as much money.  Will I get rid of it probably not but I did survive without it once and could do it again other than friends and family freak out because they can't get ahold of me at a moments notice. 

I save and save and budget and look at that budget over and over again every month.  I save 12% of my salary in a 401K, pay extra on my mortgage, have 2 credit cards that are 0% for one year and have budgeted that to payoff before the interest changes.  I have 2 vehicles with over 150k miles on them that look and run like they have 20k.  No car payment but I make one to myself every month into a savings account so when I do need a new vehicle I can hopefully pay cash. 

Yes times are tough and people don't have jobs and people live in areas where it is very expensive to live but that was your choice to begin with on where you live and yes I know that you didn't have a choice in being let go or the comany closing and that I do have sympathy for.


 People want to blame the banks but guess what a bank is a business.  They are not given money every month to run the computers, pay the processing fees for your debit card and check transactions.  If people really took the time to look at the expenses of a bank for your "free" checking account then those people wouldn't have an issue paying a monthly service fee or whatever you want to call it. 


Feb 10, 2012 12:21PM
I'll tell you when you know your finances are "on the brink" - you just lost your job!  THAT will really put you in hot water for a LONG time.  I was unemployed for a year and a half, and I've been back to work one year, and still catching up. 
Jan 30, 2012 1:41PM
If you get in the habit of overdrafting, at the very least tie it your savings acount so money gets pulled out of there to cover your funds instead of racking up fee's. This option is free at the bank and you shouldn't get charged to do this.
Feb 9, 2012 11:32PM
Geez, you chumps, remember the great Obama is in control, no worries, spend away!!
He will bail you out by fleecing some faceless, idle rich, republicans.
Feb 10, 2012 8:41AM
Let's face it, bankruptcy and foreclosure is a way of life in America today. It has been promoted through commercial advertising as the best way of life. How do you stop it now when these people have been shown this is the good life. Spend, spend, spend.
Feb 10, 2012 3:01PM
wow, 5 signs you are in financial trouble.  i am sure if people could get paid to tell other people what they already know, they wouldn't be in financial trouble.  what a wizard this guy is.  why doesn't he offer up advice on how to find work when there is none to be found, that would be an article worth reading. 
Feb 10, 2012 6:38AM

#6 - banks wanna do ANY business with you besides storing your money, feesfeesfees:  so underwhelming - that is kind of funny...

still waiting on the zombie apokolypse

Feb 9, 2012 11:38PM
don't count on your old age benefits live day to day you never know what going to happened  .today economy can melt with no warning in a meter of hours one russian men tell me when he get to age 65 the soviet union collapse and he lost his life benefits
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