Debt Checklist: Are You Carrying More Debt Than You Should?
No ‘one-size-fits-all’ suggestion is possible when considering the right amount of debt to assume. But that doesn’t mean there are no good guidelines at all.
Naturally, credit card companies and other lenders are happy to make available as much money as they think their borrowers will repay. They take risks, but those are calculated risks. They look at default rates, current interest rates and carefully review credit history when they make loans. Borrowers can benefit by following some aspects of their strategy.
Before taking out new credit, think about the odds that you’ll 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 think about this as well. However, be sure that these increases are sure to happen. It’s not your money until you actually receive it.
Watch bond option prices and current interest rates to see what direction they are going. The professionals know that if bond prices are heading down interest rates are likely to climb. This is how they make determinations about inflation and projected interest rats. You can benefit from the knowledge of these professionals.
Look at your own credit history the same way a bank would. Try to see it from their perspective. Would you loan yourself $10,000 at 7% for 48 months? Avoid rationalizing late payments or defaults. You may have had a legitimate reason, or you may not yet have developed the resources (inner and financial) to repay all your debts on time.
Make an honest assessment of your income and expenditures. You might 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 might value having the item this day more than you value the extra money it will cost you over what you save by saving for it.