Top 10 Signs You Could Be Headed for Debtors' Prison

Regular readers of this blog know that my new can’t-miss television show this season is National Geographic Channel’s Locked Up Abroad. Each week, this absolutely fabulous show features the story of somebody who had the misfortune of either getting incarcerated in a foreign prison or kidnapped abroad and held against their will.

Locked Up Abroad is narrated on-camera by the actual people whose story is being told. This first-person narrative not only gives the show an emotional kick that would otherwise be lacking, but it also effectively conveys the tension that these poor folks were feeling at the time of their ordeals. As a result of this, I always find myself squirming on the edge of my seat as their stories unfold.

A sadly common thread that stands out in almost every episode is that most of these people could have avoided their unfortunate fates if they only had heeded the red flags that were all around them. What is absolutely gob smacking, though, is that the subjects freely admit to seeing the warning signs that could have saved them!

If it weren’t so tragic it would be comical.

“I entered Caracas International airport with 20 kilos of heroin strapped around my waist,” they’ll wistfully say, “I entered the terminal and observed the drug sniffing dogs, relentless police presence, and even the paramilitary conducting on-the-spot body cavity searches. At that moment I knew I should have turned around and called the whole thing off, but then I told myself to relax — I had everything under control.”

We can all shake our heads at them, but the folks featured in Locked Up Abroad aren’t the only ones who ignore red flags. In the personal finance world, people routinely ignore red flags that suggest their financial situation is unstable and susceptible to collapse.

Today, most countries have abolished debtors’ prisons and they are now just an anachronism, replaced instead by the bankruptcy process, civil litigation, and ruined credit ratings. However, did you know that debtors’ prisons do still exist in several countries, including Greece and the United Arab Emirates?

It’s true!

With that in mind I am sure that it is only a matter of time before I see an episode of Locked Up Abroad that features an expatriate who got behind on his obligations and was sent to the hoosegow.

To ensure that you aren’t one of the next people I end up seeing on a future version of Locked Up Abroad, be careful to observe these ten red flags that could be signaling your financial house is in disarray:

1. You have revolving balances on your credit cards. Folks who fail to pay off their credit card bills in full each month, by definition, are in violation of one of my ten commandments of personal finance. That is, they spend more than they earn. As a result they are more susceptible to getting in over their heads and defaulting on their obligations down the road.

2. You rely on paycheck loans to pay your bills each month. This is one of the worst examples of living beyond your means.

3. You’ve been turned down for a consolidation loan. This is a sure sign you are already over-extended and that your debt-to-income ratio is too high.

4. You’re hiding your spending behavior from family members. This red flag indicates that you are aware of your personal finance problems, but are unable to acknowledge it. Fighting with your spouse is a related indicator as financial troubles often lead to domestic trouble.

5. You finance your vehicle for more than five years. This is a clear sign that you are buying more vehicle than you can reasonably afford.

6. You get more than one late notice per year. On occasion, everybody may let a bill fall through the cracks and forget to pay it. But if you find yourself getting multiple late notices for bills, especially for utilities, then that is a signal that your finances may be in serious trouble. Phone calls from creditors is another red flag.

7. You get more than one bounced check per year. Again, most folks have a reasonable explanation for being guilty of having an occasional overdraft of their checking account. But if this happens more than once per year, then that is usually a sign that your personal finances are amiss.

8. You need a co-signer to get a loan. Those that do not have a credit history can ignore this warning sign. However those that have established histories need to be worried because, for most people, the need for a co-signer indicates that banks no longer find you credit worthy.

9. You find yourself borrowing from your family and friends. Not only does borrowing from family members sow the seeds of family discontent should you fail to pay it back, it also is another indicator that you need to get your financial house in order.

10. You lack an emergency savings account of at least three months living expenses. Those who are managing to live paycheck to paycheck can be completely derailed by even a modest unexpected expense such as the need for major car repairs.

If you find yourself participating in two or more of these practices, then you’ll need to get your financial house in order pronto to avoid a financial meltdown. And, hey, if you’re living in Greece or the UAE you might even find yourselves spending some time in debtors’ prison.

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