Do you dread that time of the month when your utility and credit card bills come in? Because when you start doing the math, you realize that you will be short in cash again?
The Covid-19 pandemic has brought this on to a lot of Filipinos. Jobs and businesses have been affected, so there will definitely be a change or shortage in income flow.
But if you have been struggling to make ends meet even before the pandemic hit, your money problems may be because of poor money management.
You think you got it under control. But you are financially overextended and you don’t even realize it.
In this article, spot the signs and learn the ways you can regain control over your dire financial situation.
What is overextension?
Overextension means your loans or debts are more than what you can repay. This happens when you need to pay your loans and debts on top of paying daily expenses, mortgage, and utilities.
It leads to a situation where your loans and debts go beyond your capacity to pay them back. Even if you want to pay them on time, you cannot because there are just too many financial obligations or too little income coming in.
5 signs that you are financially overextended
Using your credit card for everything
You use your credit card so much that you can effortlessly recite your credit card number and CVV from memory.
Whether it’s a big or small purchase, you charge everything to your credit cards. And not for the reason that you just want to go cashless. More because you don’t have cash to spend.
This is spending money that you don’t have. Your credit card is not supposed to supplement your income. Doing so will only plunge you into bigger financial worry and even more debts.
Spending more than you’re paying
You’re always short on cash, so you just use your credit card to pay for stuff. The problem is that it’s already hard to pay your credit card bill in full, but you’re still raking in credit card charges every month.
More often than not, your card is close to being maxed out, if it isn’t already. So your revolving balance just adds to your credit card debt.
Getting a loan to pay off another loan
Do you borrow money from friends so you can pay off your other debts or loans? And do you borrow money again so you can pay off what you borrowed from that friend?
There’s nothing wrong with this if it’s a one-time financial emergency that you need to deal with right away.
However, it’s another thing if it happens every time, even if you have a stable income, and even if there’s no financial emergency.
The more you borrow, the deeper you put yourself in debt, and the more money you pay in interests and charges.
Using up your savings to pay off debts
As your debts pile up, you have also inadvertently taught yourself to ignore calls and text messages from unknown numbers because they’re usually debt collection agencies.
You find yourself paying off bills by importance or urgency. Electricity and water bills first before, say, your cellphone or your credit card bill.
Until you’re left with no choice but to dip into your savings or emergency funds.
It may count as an emergency, but what if there is a real emergency in the near future and you’ve used up all your savings? This will cause more financial problems for you. And you will have no choice but to borrow even more money just to stay afloat.
Not knowing how to make your rent or mortgage payments
If daily expenses and utility bills take up the bulk of your income, how you’re going to pay for your rent, mortgage, or car will naturally be a cause of worry.
So you resort to getting another loan from the bank or from your friends.
If you haven’t maxed out your credit card, a cash advance also becomes an option because you can borrow just enough to cover your payment for the month. But this is also how you get buried in credit card debt.
The bad effects of being financially overextended
Even small debts can balloon to huge debts if you are unable to pay them off on time, thanks to compound interests. The more you put off your payments, the more your debts become unmanageable.
Calls, messages or even visits from debt collectors and your creditors can also affect your physical and mental health.
Furthermore, your credit rating takes a hit when you have too much debt, multiple loans or always late payments. To banks and financial institutions, these are signs that you are not creditworthy or financially responsible.
How to regain your financial power
Have an action plan. It’s crucial to review your finances and devise a financial plan that’s doable while it’s still manageable.
Speak with your creditors and renegotiate. Because of the pandemic, a lot of companies have extended their grace periods or waived penalties for late payments. This will give you a little breathing room every month when it’s time to pay the bills.
Create a budget and stick to it. Avoid unnecessary expenses on your credit cards. Better yet, only pay in cash.
Downsize. Let go of a few luxuries that you can do without for more savings and to make your monthly expenses more manageable.
If all else fails, consider looking for another job that offers a higher salary. If not that, get a side hustle or a part-time freelance job that will increase your income stream.
If you are pushing your finances to the limit on a monthly basis, you are definitely financially overextended. But this doesn’t mean you’re financially ruined.
As long as you are willing to make the necessary changes and come up with a realistic plan to regain control of your finances, there is hope.
You can get out of debt while still paying your bills on time and putting some money away for savings. All it takes is discipline, commitment, and making smart money decisions!