Debt Checklist: Are You Carrying More Debt Than You Should?
No ‘one-size-fits-all’ recommendation 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.
When you are thinking about applying for more credit, think seriously about it and honestly consider if there is any possibility that you will be unable to repay the debt. Never think of bankruptcy or defaulting on the debt as an option. That type of thinking has disastrous results.
It is okay to consider anticipated increases in your salary. After all the credit companies consider 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 may 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.
Ultimately the decision is yours and no one can make it for you. You have to personally weigh the pros and cons of “buy now pay later” and decide if spending more in the long run and creating another monthly bill is better than waiting until you can pay cash.
Filed under: Management