Debt not only causes stress and worry, but it could also harm your credit rating. If you miss a payment or, in most instances, are more than thirty days late your creditors report this to the credit bureaus. The negative report in turn has a huge impact on your credibility and your credit score.
When deciding whether or not to take on new debt it is important to consider your debt to income ratio. This is the percentage of your monthly gross income that goes toward paying your debts. The key is to keep this number as low as possible. A rule of thumb is to not have your personal debt exceed, an estimated, 36% of your total income. When working on creating wealth you don’t want any money to have to go towards unnecessary debt. If you want something that will not increase in value; pay cash for it. If you can’t pay cash for it then don’t buy it.
Credit cards should only be used in the case of an emergency. If you find yourself having to use your credit card a lot, slow down on your spending, allocate a plan to bring the balance to zero and discontinue the use of your credit card. Incessant spending is a form of mismanaging your money. This is what puts most of us in debt.
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January 16th, 2009 at 4:22 pm
Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
January 16th, 2009 at 5:15 pm
A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks
January 18th, 2009 at 10:55 pm
Good ideas. I like that you point out the debt/income ratio as a rule of thumb. Most websites just tell you to stay away from debt.
January 19th, 2009 at 5:03 pm
Good post. I’m working on refinancing the home and the lender mentioned that “before” the economic crisis, debt/income ratio was allowed to be just over 50% - now they are pushing for 45% or less.
March 16th, 2009 at 9:27 am
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October 2nd, 2009 at 9:25 am
very good blog & i am interested to know more about this.
thank u
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November 27th, 2009 at 7:29 pm
I had debt tribulations for several years. It was a horrible feeling to undergo that constant pressure day in and day out. People that are struggling really ought to button down and eliminate all extra spending to get out of their debt troubles. It is worth it to feel much better.
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