|
Stop the debt
cycle.
We all manage to
run up our credit cards, but really never have a plan in mind on
how we are going to reduce and eliminate the debt. By the time we
realize what we have, we are already in over our heads. But, this
does not have to happen if you use a few calculations you can know
when your debt is getting out of control. Take into consideration
these bills and the percentage that they absorb or your income,
they are:
-
Housing takes
up a vast majority at 35%; this is mainly the mortgage or rent
-
Next is your
transportation at 20% and is usually composed of the car
payment, insurance, and gas
-
Miscellaneous
debt should fall around 15% and these are your credit cards and
any and all loans
-
Miscellaneous
expenses like food, other insurance, medical needs, clothing and
so forth is around 20%
-
Investments
and savings is there is even anything left comes to maybe 10%
What many
creditors will be looking at is your debt to income ration. When
your debt is more than 50% of your income creditors become
nervous, mainly because an unexpected emergency or problem could
easily push that number up to 60 or 70% or higher. Leaving you
with very little money for essentially needs like food and
clothing. Which means you will be more likely to default on your
loans or debts to meet those basic needs first. Also, many times
your debt to income ratio is based off of your gross yearly pay
and not your take home pay. Keeping that in mind will help you
determine just how much you should be spending.
Always checking
on your credit to debt ratio is important because for example, if
you paid off a card, do not close it. Closing the card will bring
down your credit score, because the score is comprised of your
total debt, along with the length of credit history. Closing a
card could actually increase your credit to debt ration and/or
shorten the length of your credit history. To figure out the
ratio is by totaling all your credit limits and loans and divide
by the actual amount spent in total. After paying off a card the
debt has been decreased, but closing it will also substantially
decrease your available credit.
Learning on to
handle your credit and debt before it gets out of control will do
a lot more good, then trying to take care of things after they
have gone too far. A few ways to do this are:
-
Teaching personal finance as early
as Jr. High and High school... Teaching kids then will stop
many from making financial blunders later on.
-
Learn to save instead borrowing
every time there is something you want. Cutting back on other
expenses and saving will get you the item you want and keep you
out of debt.
-
Realizing you don't need everything
that is advertised to you. Buying the latest and greatest is
fun, but can become a waste of money. Stopping yourself from
buying unnecessary items just to have the newest will save you
money.
-
Consider
buying some items from thrift stores or outlet malls. Items
that depreciate in value like electronics can be purchased for
half the price they are at retail stores.
Once you have
implemented some of these techniques and you will on your way to
be debt free. Instead of following the crowd and living with
mounds of debt, break the cycle, get out of debt and stay out
permanently. Anyone can do this; you don't have to have a degree
in finances to figure it out. Some extra effort and thought and
you'll have the financial freedom you've always wanted.
Article
Source:
http://www.creditwebsite.net |
