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Managing Credit & Debt

Did you know that creditors have a rule for estimating your credit load? It’s called the 28/36 Rule, and it’s a guide for measuring how much debt you carry. Here’s how it works:

Your total housing debt – including rent/mortgage, homeowner’s insurance, real estate taxes – should not be more than 28% of your monthly income before taxes. Your TOTAL monthly debt payments – rent/mortgage, homeowner’s insurance, real estate taxes, other loans, credit cards – should not be more than 36% of your monthly income before taxes. For example, if you have a monthly income of $4,500 before taxes, the 28/36 rule says your monthly rent/mortgage expenses should be no greater than $1,260 (28% * $4,500). Your total debt payments each month should not be greater than $1,620 (36% * $4,500).

If your debts are within those guidelines, congratulations! You know how to handle your money. If you’re over the guidelines, our Budget Calculator can help you identify where you’re overspending, and get your finances back on track.

Paying Off the Credit Cards

Credit is a good thing – it helps us achieve some of our life’s goals. But it’s pretty seductive, too, and easy to get carried away, buying and charging things we really can’t afford. Learning to live beneath our means is the key to financial health. But what if you’re already deeply in debt? How will you pay off creditors?

Here are some tips to help you:

  • Cut your expenses to free up money for extra credit payments above the monthly minimum.
  • If you are carrying balances on multiple credit cards, concentrate on paying off those with the highest interest rates first. Pay more than the required monthly minimum.
  • Always pay on time and avoid late charges.
  • Call the issuing bank and try to negotiate a lower interest rate.
  • Once a card is paid off, do not close the account because that can damage your credit. But put the card away in a drawer; don’t carry it in your wallet. You could also cut it up because that does not close the account.
  • Beware of those blank checks card issuers send, and shred them immediately so you won’t be tempted to use them. Did you know that using those checks may carry a higher interest rate? That’s because they are really a cash advance, not a credit card purchase, and different rules apply.
  • Credit counseling services can help you manage your money and debt, but remember that many of them also charge you a fee. Before you sign-up with a credit counselor, check out the company with your State’s Attorney General and the Better Business Bureau.

Use our Accelerated Debt Payoff Calculator to see how soon you can become debt-free if you increase your monthly payments.

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Last Updated: 4/18/2017