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Before
making the decision to add more debt,
you need to make sure that you:
- Allocate
sufficient money for your essentials.
- Borrow
only for items that you need and can
afford.
- Borrow
only if you're spending less each month
than you take home.
1.
Start with your monthly take-home pay.
This
is the amount you have left after taxes
and other deductions have been made.
2.
Subtract the amount you need for necessities
and fixed expenses.
This
includes savings, your mortgage or rent
payment, utilities, food, transportation,
child care, medical care, clothing, and
recreation. Include payments made on a
quarterly, semi-annual, or annual basis,
such insurance and taxes.
3.
Subtract monthly payments for existing
loans and credit cards.
4.
The balance is the amount you can safely
apply to debt repayment.
Avoid
thinking you can spend all this amount,
since emergencies do occur, and you may
not wish to use your regular savings account
to cover small, unexpected expenses.
Monthly
Take Home $ _______________
Fixed Expenses $ _______________
Loans/Credit Cards $ _______________
Amount Available For Additional Debt $
_______________
Moral of the Story: If you’re
planning to buy a new house or car, pretend
you have already done so and start “making
the payment” but to yourself. Within
a few months, you’ll know whether
or not you can really afford it and you’ll
have some money set aside for repairs,
etc. when you actually do make the purchase.
If you can’t make the pretend payment,
you certainly won’t be able to make
the real one consistently. Time to go
back to the drawing board and figure out
what else you’re willing to give
up in order to have the new debt.
How
to Manage Credit Card Use
Many people find themselves with credit
problems because they don't keep track
of purchases they make with their credit
cards. A simple method of keeping track
of monthly credit card charges is to:
- Determine
the total amount you can responsibly
charge on all your credit card accounts
during that month.
- Keep
track of your credit spending in the
same way you maintain a running balance
of your checking account.
- Subtract
each amount charged from the monthly
charge limit you set.
- Stop
using your credit cards if you draw
this balance down to zero.
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