"Will that be Cash or Credit?"Written by A. Raymond Randall, Jr.
From Bangkok to Edmonton, credit card statements stuff mail and email boxes with payment deadlines. Every bill reminds giver that gifts given freely do not come free. Giving and buying often exceed generosity and need as a brittle piece of plastic becomes an avaricious spoiler of hopes and dreams. During this week, two families emailed me about credit card debt. One family lugs $12,000, and $50,000 shackles other. Each family wants relief; however, debt accumulation comes easily while debt relief sucker punches emotions and wallets. Consumer debt burdens workers of all economies. Highways jam with doldrums, "I owe...I owe...It's off to work I go". . Truly, as an ancient proverb reminds us, "The debtor is servant to lender". Nearly every government graphs consumer debt. The U.S. Federal Reserve's January report set U.S. consumer debt at 2 trillion dollars; highest level in U.S. history. Canadians report an all time low savings rate (when debt goes up, savings goes down). Thailand consumers pushed debt levels up 25% last year. United Kingdom families might be forced to reduce their spending or sell their homes if interest rates ratchet up just 1%. Debt management resources can guide consumers to high ground of debt relief as many credit management companies discover need for debtor assistance and education. However, consider these steps before doling out more money to a credit assistance agency. 1. Manage your feelings. Take some time journaling your emotions about money by asking yourself where you learned personal definitions for fear and greed. Have some fun taking innovative surveys found at Emode.com. 2. Push-off weights of procrastination. Take action; do it now. This work requires sweat and concentration, but rewards assure you of freedom and achievement.
| | How to avoid the pitfalls of creeping debt.Written by Debs, DebtSteps.com
Reducing debt usually isn't a high priority for people until they have already gotten into trouble with overspending. Using a few basic guidelines, and debt calculations, can help you see when your debt load is getting into danger zone.Budgeting Guidelines First off, creditors use budgeting guidelines when reviewing and approving credit. If your debt exceeds financial communities recommended guidelines, then you have a higher risk of credit applications being denied. Getting, and keeping, your debt in line with recommended budgeting guidelines, is an important step in debt reduction. Use following recommended budgeting guidelines (the same ones used by Financial Institutions) to review items in your budget: - Housing 35% - Mortgage or rent, taxes, repairs, improvements, insurance, and utilities;
- Transportation 20% - Monthly payments, gas, oil, repairs, insurance, parking & public transportation;
- Debt 15% - Credit cards, personal loans, student loans & other debt payments;
- All other expenses 20% - Food, insurance, prescriptions, doctor & dentist bills, clothing & personal;
- Investments & Savings 10% - Stocks, bonds, cash reserves, retirement, rental real estate, art, etc.
Debt Income Ratios The second step is calculating your debt income ratio. Once you know what your ratio is, you will understand just how important debt load is to your overall financial picture. Your debt income ratio is percent of your monthly take-home pay that goes to paying debts. You calculate it by taking amount needed to repay debts each month, including rent or mortgage, and divide by your take-home pay (your net pay after taxes). Remember, this is "Debt" ratio, so only include actual debt repayment in calculation. Credit To Debt Ratio Just because you pay off a credit card is no reason to close your account. One little known fact about Credit to Debt Ratio is reverse effect it has on your credit score. If you pay off a credit card, and close account, you are actually negatively impacting your credit score. The reason for this negative effect is in calculation of Credit to Debt Ratio itself. This ratio is relationship of your debt total vs. your credit limit. You calculate it by dividing total credit limit of all credit cards and loan accounts by total of actual debt (spent total). Now, if you pay off a credit card, you are reducing actual debt, which is great, but, if you close account, you are also dramatically reducing credit limit you have, and usually by a higher percentage than debt reduction. Pay Yourself First
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