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.



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