Do you Know How Much Debt you carry?
You just bought your dream car. Aside from that, you’re still making monthly mortgage payments on the house. However, you heard an announcement that your dream home theater equipment has a special discount price at the mall.
Wait a minute! Before you run towards the mall, you have to sit down and do some thinking first on how much do you really owe. Have you ever computed how much your debt is affecting your life?
If you are an average person, there’s a big chance that you don’t know. Also, you are most likely underestimating the interest rates you’re paying each month.
Actually, the first step in debt prevention is really listing down all your debts – credit cards, car, mortgage, and other loans including the interest rates, balances, and monthly payments.
The payment on your mortgage should not be greater than 25% of your income. Usually, you need to add another 5% for insurance, taxes, and routine maintenance. At the same token, your car payment should not be higher than 15% of your income in addition to 5% for routine maintenance and insurance.
Come to think of it, this is already 50% of your income! So to avoid being trapped in deep debt, make it a point to set aside 10% on the other half to serve you in terms of emergencies or profit for you through a tax-deferred savings plan.