When it comes to making money or spending money, you should know what to do if your financial situation is safe. Frankly: Where are you? Where should you be?
You need to answer this question as a solid measure of your financial situation. As it happens, this indicator already exists. It is called debt-to-income ratio. This figure shows how much of your monthly income is used to pay for various debts. The higher the percentage, the worse your behavior. Experts say that, ideally, your monthly debt should not affect 36% of your income.
But it's hard to keep at your 36% level. More and more people spend money. According to the Fed, consumer debt has soared 24% since 2002, despite the fact that the national saving rate has been hovering around zero for many years. How did we get into this situation? The overriding reason is the economy. Slow economic growth. Employers are cutting benefits, and wage growth is basically flat.
At the same time, spending calories is as easy as spending calories. Last year, typical families received 68 credit card offers, a 46% increase over 1998. Today, American families can get an average of 26,317 U.S. dollars in credit, or more than half of the average household income.
Then click on us. The balance of credit cards for ordinary American households has reached around $9,900. People think that they should be able to take on all these things because others do it and they can hardly do it.
There are some debts that are inevitable or even desirable. Few people can afford to buy a house without a mortgage, almost no one is eligible for a mortgage or most other loans, and there is no credit history showing how quickly and successfully they deal with past debt. But what kind of debt is justified, what should you pay for as soon as possible? Here are some guidelines.
Your house. The old rule is that you should not spend more than 2.5 times your house income. The reality is that we spend more and less. When we begin to use the stock, the problem will worsen. What you should do: Try to keep your fixed housing costs, monthly mortgage payments, insurance and property taxes, but not repairs and maintenance, which account for 28% or less of your total monthly income.
Cards and car loans. Many financial planners say you have no credit card debt at all. Do not have a car loan for more than three years. For a longer time than this, and after you pay for it, the car is usually worthless or worthless. If you can settle it as operating expenses, you should only rent it. If you can't, don't despair. If your consumer debt (including car loans) is less than 10% of your total income, your status is still good.
Other methods of controlling debt
Pay more than required. If possible, try to double your payment at least. In addition, if you can help, don't be late. When you are late, your credit card company can and will increase your interest rate. You can go from zero interest to 28%.
Pay off consumer debt - then invest. People sometimes make the mistake of regularly investing in mutual funds instead of repaying credit card debt first. But they need to change their priorities. The funds you invest in may generate 10% of the funds, but for most people who are still below the credit card interest.
Refinancing. With the Fed cutting interest rates, it may make sense to refinance your mortgage. This way you can free more cash to pay your credit card. If your house has a lot of equity, consider using a home equity loan to consolidate your debt. However, please be careful not to use your card again. You may be tempted by all the fresh credit provided to you suddenly.
Launch of contingency fund. In an ideal world, you have about six months of living expenses, (whether you need to protect yourself, wear clothes, or feed), you can save money. At the very least, try to establish a storage space of $500 to $2,000. This will not protect you from being unemployed, but it will prevent you from using credit cards for urgent expenses such as tire punctures.
Don't spend your tax refund. If you get a refund this year, use one of these parts to start your emergency fund and then use the rest to repay the debt.
Orignal From: Credit Card Debt - A Downsizing Plan
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