|
Home::Debt Relief
Reducing Debt Before It's Too Late - How to Avoid the Pitfalls of Creeping Debt
Author : Debs Seeber
Reducing debt usually isn't a high priority for people until they have already gotten into trouble with overspending. Using a few basic guidelines, and debt calculations, can help you see when your debt load is getting into the danger zone. Budgeting Guidelines Creditors use budgeting guidelines when reviewing and approving credit. If your debt exceeds the financial communities recommended guidelines, then you have a higher risk of credit applications being denied. Getting, and keeping, your debt in line with recommended budgeting guidelines, is an important step in debt reduction. Use the following recommended budgeting guidelines (the same ones used by Financial Institutions) to review the items in your budget: - Housing 35% - Mortgage or rent, taxes, repairs, improvements, insurance, and utilities;
- Transportation 20% - Monthly payments, gas, oil, repairs, insurance, parking & public transportation;
- Debt 15%* - Credit cards, personal loans, student loans & other debt payments;
- All other expenses 20% - Food, insurance, prescriptions, doctor & dentist bills, clothing & personal;
- Investments & Savings 10% - Stocks, bonds, cash reserves, retirement, rental real estate, art, etc.
Debt Income Ratios The second step is calculating your debt income ratio. Once you know what your ratio is, you will understand just how important debt load is to your overall financial picture. Your debt income ratio is the percent of your monthly take-home pay that goes to paying debts. You calculate it by taking the amount needed to repay debts each month, including rent or mortgage, and divide by your take-home pay (your net pay after taxes). Remember, this is "Debt" ratio, so only include actual debt repayment in the calculation. Credit To Debt Ratio Just because you pay off a credit card is no reason to close your account. One little known fact about the Credit to Debt Ratio is the reverse effect it has on your credit score. If you pay off a credit card, and close the account, you are actually negatively impacting your credit score. The reason for this negative effect is in the calculation of the Credit to Debt Ratio itself. This ratio is the relationship of your debt total vs. your credit limit. You calculate it by dividing the total credit limit of all credit cards and loan accounts by the total of the actual debt (spent total). Now, if you pay off a credit card, you are reducing the actual debt, which is great, but, if you close the account, you are also dramatically reducing the credit limit you have, and usually by a higher percentage than the debt reduction. Pay Yourself First Essential to long-term financial success, and protecting your future, is paying yourself first. While this may seem easy to do, it happens to be the last thing most people do, instead of first. Debts and other financial obligations, money for entertainment, and other spending always seem to take a higher priority. All I can say is, STOP! Think about it, if you aren't worth being paid first, then who is? Always put something away in your savings, and leave it alone. It doesn't matter if it's only $5 a week, just do it! Snowball The Credit Cards Last, but not least, is making extra payments, not just the minimum payments, on your credit cards. You have probably already seen this many times, but it just can't be stressed enough. Paying just $10 extra a month on a credit card, above the minimum required payment, can cut your repayment term in half, if not more! So, squeeze out that extra payment, however small, every month, and take advantage of the compounding effect of snowballing your debt away. The Power of Financial Knowledge Remember, you don't have to be a financial whiz to understand what's going on with your credit and debt. Just a few simple calculations, and an eye on the future, will go a long way to help you succeed financially and keep your debt under control. Be safe, be smart, do the math! Related articles: Compare the pros and cons of debt consolidation loans, service companies, and credit counseling.
http://www.debtsteps.com/consolidate-debts.html
Understanding how your credit score can affect your debt relief choice
http://www.debtsteps.com/credit-score.html
Copyright 2004 DebtSteps.com, all rights reserved. Reprinted with permission. Publishing guidelines: Publication is permitted so long as the resource information at the end of the article remains intact, and links are live.. Please email articles "AT" debtsteps.com providing a link to the location of the article, or a copy of the newsletter. About The Author Debs is the editor of www.DebtSteps.com where you can get the answers you need about debt relief, consolidation, credit counseling and more. Free subscrption and money management worksheets http://www.debtsteps.com/debt-help.html Spam emails More free articles Related articles
|
More related feeds |
Reducing Debt Before It’s Too Late … How To Avoid The Pitfalls Of ...
Reducing Debt Before It’s Too Late … How To Avoid The Pitfalls Of Creeping Debt. by: Deb Seeber. Reducing debt usually isn’ta high priority for people until they have already gotten into trouble with overspending. ...Reducing Debt Before It's Too Late - How to Avoid the Pitfalls of ...
You cipher it by dividing the sum credit bounds of all credit cards and loan accounts by the sum of the existent debt (spent total). Now, if you pay off a credit card, you are reducing the existent debt, which is great, but, ... Reducing Debt Before It's Too Late … How to avoid the pitfalls of ...
Debs is the editor of www.DebtSteps.com where you can get the answers you need about debt relief, consolidation, credit counseling and more. Free subscrption and money management worksheets http://www.debtsteps.com/debt-help.html ... Reducing Debt Before It's Too Late ... How To Avoid The Pitfalls ...
Reducing debt usually isn't a high priority for people until they have already gotten into trouble with overspending. Using a few basic guidelines, and debt calculations, can help you see when your debt load is getting into the danger ... Reducing Debt Before It's Too Late - How to Avoid the Pitfalls of ...
You calculate it by dividing the total credit limit of all credit cards and loan accounts by the total of the actual debt (spent total). Now, if you pay off a credit card, you are reducing the actual debt, which ... Increasing Patient Care and Reducing Liability in Seven Simple ...
From a liability standpoint, as we know all too well, having a family member making medical decisions, often means that if complications do arise, the family will be much less likely to sue, than if they hadn't been in attendance. ... How to Use Sliced Graphics to Layout Your Web Site. Acne Treatment ...
It usually takes around 8 weeks before you see any significant improvement so you are going to have to be patient. Once you've got your acne cleared up it's important to continue with the treatment that's working so it does not return. ... 10 Effective Ways to Remember Names. Duvet Covers Are Easy to Make ...
That doesn't seem too hard does it? A pillow case keeps the pillow clean as you sleep on it, and the duvet does the same thing. All types of bedding should be soft and supple since it is next to your skin. ... Google's Big Birthday Present. Is PR Right for You? 6 Questions to ...
It's about sending story idea after story idea to the same reporter before one finally connects (and maybe it's the tenth one). It's about sending a little note or letter to the same editor for as long as several years before you get a ... Picking Up The Pieces. Should I Have My Company Mystery Shopped?.
Management may think that tightly merchandising their floor space is giving the customer the selection they want, and it turns out that the customer says it is too cramped to shop comfortably. 2. Should I do a Mystery Shop Without the ...
|
|
|
