Debt Checklist - Are You Carrying More Debt Than You Should?
Saturday, October 18th, 2008 Subscribe To Our Feed
No ‘one-size-fits-all’ recommendation is possible when considering the right amount of debt to assume. But that doesn’t mean there are no good guidelines at all.
Credit card companies risk a lot to extend as much credit as they believe they will receive payment on. But they don’t extend credit blindly. They do their homework, checking current interest rates, credit history, and default rates before extending credit. Borrowers can learn from their methods.
Before taking out new credit, consider the odds that you will have to default on repayment. Don’t factor in to your decision the possibility of deliberately defaulting or filing bankruptcy. You’ll find the consequences are rarely worth it and that should be reserved as a very last resort.
It is okay to consider anticipated increases in your salary. After all the credit companies consider this as well. However, be sure that these increases are sure to happen. It’s not your money until you actually receive it.
Look at current interest rates and make a prediction about where they are headed, businesses do. That’s a very difficult thing to be confident about, but general trends are not random. Look at bonds, futures and other indicators. If 6% bond option prices are going down, many pros are betting interest rates will rise to above that in the future. These represent the bets of professionals about the future direction of inflation and interest rates.
Try to look at your current credit situation from the standpoint of a lender or credit card company. Before applying for credit, ask yourself “Would I extend this credit to a person with my credit history?” Don’t be overly forgiving of yourself for late payments or past due balances. It may be that a pattern has developed not only because of lack of funds but lack of self control to pay your debts in a timely manner.
Make an honest assessment of your income and expenditures. You may really want a new car, but can your budget handle it? Be realistic as to whether you can handle a new car payment and still meet you other monthly financial obligations.
No one can decide for you whether it’s worth assuming an ongoing $200 per month credit card payment at 12% in order to have an item you’ve been longing for. You may value having the item today more than you value the extra money it will cost you over what you save by saving for it.
About the Author: Never able to pay off credit card bill at the end of the month? Learn how to get your debt paid off faster - starting right now - at the Debtopedia website. Visit http://www.debtopedia.com to claim your free copy of my special report “Secrets of Credit Card Debt” now.
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