finances,debt,spending
LifeMoney

When Debt Becomes Too Much: Keeping Check of Your Finances

Before you think of making that next big purchase, think twice. You may be plunging into debt that’ll be hard to swim out of.

man coinsWhen was the last time you spent on a whim and used your credit card on something that you felt you deserved, given a variety of reasons? When was the last instance you borrowed money?

Well, it seems many have also become less frugal in recent years, fueled most especially by the holiday season. In the U.S., in particular, personal spending accounted for most of the sales during the last quarter of 2011. The savings rate has also dropped from 3.5 to as much as 5.3 percent.

We know just how you wish you could afford your dream home, especially if you’re just starting a family. This is the reason why most couples stretch their budgets so they can get a loan and pay off the mortgage, but take into consideration your needs, requirements, how much you can actually shell out, among other factors.

According to an article on healthland.time.com, you should go for the mortgage payment requirement that does not exceed 28 percent of your take-home pay. 

Next, credit cards. Ah, these plastic babies shouldn’t put such a toll on your finances, given the advantage of availing installment payment plans and cash-back rewards, among others. But the sheer convenience of having them in your wallet whenever you don’t have cash on hand can be such a tempting experience. 

Consider this. Every time you leave a balance unpaid from your credit card bill, this actually qualifies as excessive debt. Healthland.time.com advises that you keep available at least 30 percent of your credit limit, just so you can keep your money in check.

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Car loans are another matter. Especially when your job requires you bringing your own transportation, and when you want to be able to go on road trips with the family, cars most certainly can become a necessity. But do you really need the swankiest, newest car in the market? You may want to check out money.msn.com’s car loan calculator, where you can factor in the down payment, desired monthly payment, the annual interest rate, and the term of the loan. 

While some car loans can require a car loan that will need at least 11 percent of your monthly income, you might want to settle for one that just asks for a maximum of 8 percent instead. 

There’s certainly nothing wrong with spending on something for yourself every now and then, even for non-necessities. But keep in mind that for you to be able to afford those things that your family really needs, you’ll need to be more practical and yes, frugal. 

As these examples illustrate, a huge chunk of your monthly income goes to them, so take the time to reconsider your spending habits so that whenever you do want to buy a want, it’ll be so much more worth it.

You may also want to read:

24 Ways to Save Money on Household Expenses, Part 1

The Truth About Your Financial Choices: Debt, Insurance, Savings, Payments and More <  >

Managing Your Finances: Good Spending and Budgeting Habits 

Buying your dream home 

Sources:

December 14, 2011. Dan Kadlec. “5 Signs That You’re Borrowing Too Much” moneyland.time.com

• Car Loan Calculator. Money.msn.com 


Photo from sxc.hu

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