Do You Have Too Much Debt?
Various rules of thumb exist to help determine when debt levels are excessive. For instance, one states your total debt payments including your mortgage and credit card bills should not exceed 36% of your gross monthly income. The problem with rules of thumb, however, is they don’t take into account your unique circumstances. Look for these signs that your debt level may be getting too high:
You have no money left over at the end of the month.If you have nothing left to save after paying your bills every month, your debt may be too high. Be especially concerned if you have to dip into savings to pay bills.
You’ve reached your maximum credit limit. If you’ve maxed out your credit card limits or are considering obtaining new ones for additional credit, your debt may be getting out of hand. Credit cards should be used as a convenience, not to finance an unaffordable lifestyle.
You’re only making minimum payments. Minimum payments on credit card debt are so low that it can take decades to pay it off. It will be difficult to get your debt under control if you are only making minimum payments.
You don’t have an emergency fund.Ideally, you should set aside three to six months worth of living expenses in case of emergencies, such as a job loss or major home or car repair. If you can’t maintain that due to debt payments, your debt level is probably too high.
You’re not comfortable. The ultimate test of whether your debt level is too high is your comfort with it and the payments that must be made.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.