6 signs you need a summer financial reset

By Marianne Curphey

In January, you may have made some financial resolutions: "I will not put off paying my credit card bill," or "I will not let debt pile up this year." Now that we are halfway through the year, the time is ripe to reassess your finances. Have you kept your promises, or are your money matters still a bit messy?

Look for warning signs that you aren't on the right track, and take steps to fix them well before this New Year's Eve rolls around.financial-cleanup

1. You are not sure how much you owe
A big sign that you need to whip your finances back into shape is having so many bills you can't keep track of who you owe, or how much you owe them.

Make a list of exactly how much you owe each creditor and your monthly payments, Bev Budsworth writes in her blog on The Debt Advisor, where she is the managing director.

"If the total of these repayments is higher than your surplus, you know you need to make cut-backs to be able to afford to pay off your debt," she writes.

Sit down and work out what income is coming in, and how much money is going out, says Philip Pearson, independent financial adviser with P&P Invest.

2. You are paying your bills late
This is another indication that your finances are a bit messy. Not only can paying late negatively affect your credit score, but it will get expensive. It's imperative that you get caught up on your payments, then continue to send payments on time from now on.

Sarah Hennigan, founder of Money Clarity financial planning, suggests two ways to make that happen. You can repay the debt with the highest rate first, and make minimum payments on lower-interest debt until it's paid off. Then start chipping away bigger pieces from your next-most-expensive debt.

"However," she says, "there is an argument to say that it is worth paying off the debts with the smallest balance first as this will provide small 'psychological wins.' There is no ‘one size fits all' approach. I think it's about creating a debt repayment strategy that works for [you]." 

3. You are not paying off your credit card in full each month
It's not necessarily bad to make minimum payments on your credit cards. But if the minimum is all, or more, than you can afford, it's a major clue that you aren't spending wisely.

If you are struggling to keep up with payments, try to avoid using your credit card until you have paid off the balance in full. Then, it's important to keep using the card regularly, but don't spend more than you can pay off by the end of the month.

4. You are taking out short-term loans
If you find you need a loan to pay off debt, you are in trouble. Short-term loans come with high interest rates and fees, which can add to your debt pile and make it harder to dig your way out. If you already have a short-term loan, work to pay it off first, then work on your other debts.

If you cannot afford to pay your other bills without a loan, call creditors and explain your situation. You may be able to work out a different repayment plan.

5. You have less disposable income at the end of the month
The cost of living is rising, so it is not surprising if there is less money around just before payday. However, if this is becoming a regular occurrence, it is time to reassess your household budgeting and rein back some treats and other expenses.

Only buy what you need, not what you want, writes Budsworth, and get organised so you don't end up spending more than you have to.

"Don't spend on non-essentials," she writes. "If you gave up your morning cappuccino or latte, you could save over £750 per year! Being organised will also help with unnecessary mid-week shopping trips as you can plan for the week and get everything in one go."

6. You are not making any provision for savings or pensions
It is hard to put aside money if you are cash-strapped, but not making any retirement provision will be more expensive in the long run. Even if you make small contributions, the earlier you do so, the longer time your fund has to grow.

"I always recommend that my clients have a financial cushion," says Hennigan. "No savings means if something crops up, then it's back to the credit cards, so try to have three months' worth of expenses and outgoings as a minimum in savings first."

Plus, she says, having money in savings can give you the relief and security of "having enough," which is much healthier than just repaying, repaying, repaying and feeling like you're pushing a boulder up a mountain.

If you find yourself in any of these situations, it's time to get organised, and fast. Start paying down debts and cutting back on spending until you are out of the woods.

"For most people a six monthly review is adequate" says Pearson. "Set financial goals for the short, medium and long term and review your progress on a regular basis."

You should have a saving provision built into your budget, he says, and you should make sure to contribute to it before spending on leisure and hobbies.

"Planning is most definitely your friend," writes Budsworth. "As well as alleviating stress ... there is also a huge ‘feel-good' factor to getting your finances under control."

If you find you can say "yes" to several of the warning signs, or if you're relying on credit and loans to tide you over for necessities each month, it may be time to take help from a professional credit counsellor.

See related: To improve finances, create a better mindset, Balance transfers, used wisely, can help manage debt

Updated: 5 August 2016