Five Signs That You're Struggling

Although you may be paying your bills, financial problems could still lurk below the surface. Watch out for these warning signals!

According to charity Citizens Advice, its network of volunteers helped 1.7 million people with debt problems in 2006/07. When you consider that there are 25 million households in the UK, this shows just how widespread and everyday `credit crises' have become! Over the past few years, I have echoed Citizens Advice by repeatedly warned of the dangers of ever-increasing levels of personal debt. With mortgage debt of £1,163 billion and non-mortgage debt of £216 billion, total personal debt reached an all-time high of £1,380 billion by the end of September. Of course, debt levels vary widely across the UK, with some households owing tens of thousands of pounds and others owing nothing. However, just because you can pay your monthly debt repayments and other bills doesn't mean that everything is fine with your finances. Indeed, you may be making mistakes now which could spell big trouble further down the line. Hence, it pays to watch out for these `red alerts' of future financial stress: 1. Having `more month than money' One of the most important Foolish lessons is to live below your means. In other words, you should aim to spend less than you earn -- every month, if possible. Alas, many of us suffer from having `more month than money', when our wage runs out days or weeks before the next pay packet arrives. If this describes you, then it's time to put yourself on a financial diet by learning to budget. Otherwise, you'll continue to pile up financial misery for your future self! 2. Planning to put Christmas on cards We're almost halfway through November, which means that Christmas is beginning to loom large on the horizon (the lights are already up in my local high street). Given that a typical household will spend over £700 celebrating this Noël, the festive season can place a huge burden on overstretched adults. So, before you go on a massive spending binge, stop to ask whether you really need to buy grand and expensive gifts for everyone you know. When times are tough, no-one expects you to splash out on presents and go without yourself. Then again, if you're not ready to cut back this December, then spend on a 0% on purchases credit card. At least it will help you to avoid paying any extra interest for a year or more, giving yourself time to get to grips with budgeting. 3. Paying your mortgage using credit According to a recent report from housing charity Shelter, over a million Brits have used a credit card to pay their mortgage or rent at least once in the past year. This is an extremely worrying statistic, because your monthly mortgage payment or rent should be the very first bill that you pay. Indeed, if you can't afford to pay your accommodation costs, then you really are up the proverbial creek. What's more, paying your mortgage using a credit card is seriously expensive. A decent mortgage will charge a yearly interest rate of around 6%, whereas a typical credit card charges over 16% a year. What's worse, some people resort to withdrawing cash on credit cards in order to make ends meet, which means paying interest rates of 20% to 30% APR. Avoid doing this at all costs! 4. Making low repayments on your plastic How much you repay each month on your credit card makes a huge difference to how long it takes to repay an outstanding balance. As I warned in The Debts That Wouldn't Die, repaying a typical credit-card debt of £2,200 would take almost 32 years using a minimum monthly repayment (MMR) of 2%. Thus, if you can only afford to pay the MMRs demanded by your credit card, then you're facing financial pain for decades to come. On the other hand, repaying this debt with a flat monthly repayment of 4% (£88, in this example) takes just two years and seven months. Better still, you can repay your debts even faster by shifting them to a 0% credit card which charges no interest on balance transfers for a year or more. Eureka! 5. Having little or no savings If you're planning on waking up for many years to come, then you should have some savings (and a pension) set aside to meet your future financial needs. Without a cash cushion to rely on when the chips are down, you could be just weeks -- or even days -- from the breadline. Therefore, I'd recommend keeping between three and twelve months' living expenses in an easy-access, high-interest savings account. By doing this, you give yourself a safety net and, at the same time, you can save money by not buying rip-off payment protection insurance. At present, my recommended Best Buys come from ICICI Bank HiSAVE (6.41% AER) and Icesave (6.30% AER), both of which have become firm favourites among Foolish savers. Finally, if you are worried about your financial health, or are struggling with burdensome debts, then I'd urge you to visit our Get Out of Debt centre and Dealing with Debt discussion board for more help. Why not do so now, before your problems get any worse? Taking your first positive step towards solvency could give you the best night's sleep you've had in ages, so don't delay! More: Use The Fool to find cracking credit cards, magnificent mortgages and super savings accounts | Don't Get In Debt For Christmas | The £1 Trillion Savings Mountain