Debt Management
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.
Sources:
http://www.thinkmoney.com/debt/debt-management/debt-management-faqs.asp
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Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
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
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.
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.