8 signs you're headed for financial disaster

By Liz Pulliam Weston

Financial crises don't typically happen overnight.

The seeds are usually planted at least months and often years before bankruptcy, eviction, repossession, foreclosure or other disasters ruin people's financial lives. Recognizing -- and correcting -- risky money behaviors is key if you want to avoid derailing your finances.

Here are some of the biggest red flags to watch out for:

You're surprised by your bank balance or credit card statements. In today's financial world, you can't be caught napping. "Float" -- the time it takes a transaction to clear your account -- has all but disappeared, and financial services are eager to penalize any lapses, such as a bounced check or an over-limit transaction, with hefty fees. At the very least, you need online access to your financial accounts, and you need to check them often -- at least once a week, more often if you've bounced a check or incurred any other fine in the past six months. Personal finance software like Money or Quicken can help you keep track of pending transactions and forecast your cash flow.

You have no savings. You don't necessarily have to keep thousands of dollars stuffed away somewhere, but you do need some kind of financial cushion to cover unpredictable expenses. For details, read "Why you need $500 in the bank."

You're carrying credit card debt. Don't fall for the myth that credit card debt is normal or that the average American carries huge balances. In reality, most U.S. households have no credit card debt, according to the Federal Reserve. See "Your 5-minute guide to credit cards.")

Credit card debt not only costs you ridiculous amounts of interest, but it drastically reduces your financial flexibility, since any balance you've charged is credit you can't access in an emergency. If you've got balances on your plastic, make paying them off a priority.

Take a hard look at the real choices

You have no discretionary income. If every paycheck is spent before you get it, or your fixed expenses eat up most or all of your income, you need to fix the problem, now. You may have convinced yourself that you have no choices, but chances are good that you do; you just haven't been willing to really consider them yet. If you need suggestions on how to trim your spending, consult MSN Money's Manage Your Debt decision center. Braver souls can post their incomes and expenses on the Your Money message board and ask for specific advice about where to cut.You don't know what kind of mortgage you have or when the payment resets. One out of three homeowners, when asked what kind of mortgage they had, confessed to pollster GfK Roper that they had no idea. Unless you have a traditional mortgage -- with a fixed rate for the life of the loan -- your ignorance could be expensive. The payment that's currently affordable could skyrocket, leaving you among the rising numbers of homeowners losing their homes to foreclosure.

Call your lender now to find out whether and when your payment can change, and get an estimate of how high it can go; then consider your options. You may be able to cut other costs to compensate for the bigger payment, or you may want to explore refinancing or even moving.

Continued: Lack of insurance

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