3 Consequences of Financial Trouble

With the sagging economy of the past decade or so, many people have experienced financial troubles. Some are due to situations beyond their control, while others may have been from poor planning or excessive spending. Whatever the cause, the effect has been the same: serious financial difficulties. Listed below are the three most serious consequences of financial troubles, as well as what may have caused them, and how they may be fixed.

1. Debt Collection: Although most of us want to pay our debts on time, this may not always be possible. Often when debts haven't been paid, the creditor will send the debt to a debt collection company. Once this has happened, the debtor is forced to pay interest and/or late charges, as well as the original debt. This debt is also listed on your credit report as being "in collection", which can really affect your credit scores.
2. Liens: A lien is a legal action taken against you by a creditor where the creditor stakes a claim on your property – in most cases your home. The most common liens are tax liens, which are put on your property by the state or federal government. Liens are not only the hardest to get off your credit report but also do the most damage to your credit. They’re as harmful to your credit as foreclosures and bankruptcies.
3. Foreclosure: Foreclosures generally take place when mortgage payments become at least three months behind. There are few things as devastating as losing a home, particularly to foreclosure. It’s costly, stressful, and can affect your credit history for many years. You may also have a difficult time buying another home in the near future.

Things That Cause Financial Troubles

Although financial troubles may occur from poor money management, it can also happen to someone who has always been both financially smart and frugal. Here are the most common causes of financial troubles.

• Poor budgeting or financial planning
• Loss of income
• Unexpected financial emergencies
• Excessive spending
• Unwise investments

Ways to Avoid Financial Troubles

Being financially smart and staying ahead of the game requires commitment and dedication. Although financial difficulties may affect all of us at one time or another, here are some ways consumers can avoid having their finances get the better of them.

• Create a budget and stick to it: Determine what you have as income and expenses and how much “extra” money you have and stay within those numbers.
• Live within your means: If you can’t afford something, don’t buy it regardless of how much you want it.
• Limit credit card use: As convenient as credit cards can be, the interest you’ll pay can be astronomical.
• Start a savings account for emergency expenses: Try to put at least ten percent of your income into a savings account and be diligent about it.
• Avoid borrowing money from others: Unless it’s a true emergency, don’t borrow from others because you’ll have to pay it back. If you couldn’t come up with the money on your own, chances are you’ll also have difficulty paying it back.