![]() The ugly truth on credit card debt
We help you understand your debt profile in order to evaluate what balances are realistic and how to best manage large purchases like homes and college educations.
Be mostly debt-free with your credit cardsNot all debt is bad debt. Lenders are interested in your ability to repay — those with higher credit scores are more reliable in terms of the amount of debt they carry and the consistency with which they make repayments. Credit card debt is really the thorn in your side. Take a look at the ratio of your balance-to-limit ratio: This is the amount of debt you carry on a card divided by your total limit. Aim for 7 percent or lower combined and never more than 30 percent on a single card.For example, let's look at a fictional case:
When your total balance-to-limit ratio is at 7 percent, as you further reduce your credit card debt you'll see a smaller gain in your credit score. You may feel great with zero credit card debt, but your credit score isn't going to see as big of an increase in points. Lenders want to see that you use credit but do so responsibly. Big ones: student loans and mortgagesStudent loan and mortgages are major investments in your future and carry large sticker prices. Many people can't imagine paying off their home decades earlier than the maturity date of their loan (although some people do). What's important with these items is to play it safe. Make sure you take out loans with payment schedules you can afford even if your financial situation were to drastically change. Debt isn't bad but being overloaded with debt is — don't hope for the best, plan for the worst.Final thoughts |
Sunday, 23 December 2012
Debt breakdown: Is being-debt free a realistic goal?
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