Debt Guidelines
Before
you take on a debt, it is important
for you to assess your income and your monthly dues. Debts or loans are
those
you incur when you borrow money from lenders. When you borrow money,
you do not
only pay for the principal amount you borrowed but also the interest
rate
charged with the loan.
Your
loans can either be secured or unsecured loans. If you have assets,
then
you can go for a secured loan. A secured loan charges lower interest
rates
because you have security deposit. The security deposit is known as
your
collateral. The collateral will be taken by the creditor as a repayment
of the
loan incase you are not capable of repaying the loan as stated in the
payment
terms. Secured
loans offer lower risks for creditors therefore they are
willing to offer
lower interest rates and better payment schemes as compared to
unsecured loans.
You can also borrow larger sums of money for secured loans.
Unsecured
loans offer higher interest rates for debtors because they do not
require security deposits. Also, unsecured loans offer lower amounts of
money
to be borrowed. Examples of
unsecured loans are credit card debt, departmental cards and gas cards.
If you have difficulty assessing and keeping track of your debt, it is
important to keep a debt guideline. Debt guidelines are also needed by
creditor
to assess your credit worthiness. Your debt guidelines will state your
housing
expenses, transportation, debt budget, investment, savings, food,
insurance
bills, doctor and dentist expenses, as well as clothing expenses.
Here is an example of a debt guideline:
Housing: Then state the amount of your housing payments. Ideally,
housing expense
must not take exceed 35% of your income.
Transportation: State the amount you of your monthly car payments, gas
and oil,
repairs, insurance and parking. Transportation expenses must not exceed
20 % of
your income.
Debt budget: This includes your student loans, credit card debt,
personal loan
and other debt payments. Debt management must not exceed 15% of your
monthly
income.
Investment and savings: This should take at least 10% of your income.
They
include stocks, bonds and the money you put in the bank.
Other expenses: This will include your food, clothing, insurance bills,
doctor,
and dentist expenses. It should not exceed 20% of your income.
You must take time to calculate all of this. If you are spending more
in each
category than the ideal, then you should start re assessing those
categories.
If you are spending lesser on other categories, then maybe you can
adjust. Just
make sure that you are not spending more than you earn. Live within
your means.
