Feel like you're drowning in debt and don't know what to do? Debt can be an spectacular, situation. It beyond doubt affects every area of your life. And, most Americans are swimming in it. Not only do we have 30-year mortgages that more than duplicate the total cost of our homes, but many of us also have car loans, student loans and unsecured reputation card debt. So, how much debt is too much to handle?
It beyond doubt is an private thing. You have to reconsider your debt to income ratio, and your earning ability. Dave Ramsey tells a great story about a young man who was ready to mouth bankruptcy because he just couldn't stand the pressure of being in debt anymore. After a few questions, the young man admitted that his spectacular, debt was ,000, he lived at home with his parents, and he only worked 20 hours a week.
Obviously, spectacular, debt is in the eye of the beholder! But, if you want to know what the "experts" say is too much debt, the Federal Government considers a debt burden of 40% of your income to be a sign of financial distress. There are some expenses you can't avoid, taxes being a big one. If you reconsider that you are probably having 25% of your income go to taxes, and 40% of your income go to pay off debt, that leaves you with 35% to live off of and save.
Personally, I think a debt burden of more than 15% is request for trouble. I'm a big believer in giving and saving advent off the top, and if I'm giving 10%, saving 15%, and being taxed 25%, I've got ½ of my income left for day-to-day expenses and living.
Let's face it; most of us just have too much debt. It's time we tighten our belts and learn to get by on less. We seem to have industrialized this mentality of wanting what our parents had - or more. The problem is, we want it now and it took them 30 years or more to get it! We want instant gratification.
Not all debt is bad. A mortgage, for instance, is usually a good investment, as long as you keep to a 15-year mortgage and don't pay more than the house is worth. Real estate is the one financial investment that seems to pay off consistently over time; which isn't to say that you can get burned there as well. Many who purchased a home in California during the housing shop boom are suffering now in the collapse. Over-inflated home values have dropped drastically, some by as much as 75%!
What you beyond doubt want to stay away from is consumer debt. That is when you borrow money to pay from something that will decrease in value. Did you know that a new car, for instance, loses 15%-20% of its value every year? This is absolutely Not a sound investment. Your best bet when buying a car is to pay cash and buy used.
If you think you have too much debt to handle, sit down and work it out on paper first. Make sure you know what the actual numbers are that you're dealing with. Then decree where you go from here. How much of your other expenses can you cut back on in order to pay off some of that debt? Are there ways you can earn some extra money to pay toward your debt? (Think garage sales, a second job for a short time, or some odd jobs on the side.) You may find that it's a smart move for you to get out of your car loan by selling the new car and buying a dependable used car.
You may truly have too much debt to handle. In that case, it might be time to pull out your monthly reputation card statements and start contacting your creditors. See if you can have your interest rate reduced (of course, if you are behind in your payments, you won't have any leverage here). If you have to make beyond doubt tough decisions each month about paying bills or feeding your family, remember, your necessities come first. You may have to let your creditors know that until your circumstances change, you won't be able to send them the minimum monthly payment and will instead send them a percentage of your disposable income each month until you get back on your feet.
If you are expecting a lump sum of money (tax return, bonus, etc.) you may be able to negotiate a debt hamlet with your creditors, although this usually only works with accounts that have already been charged off and transferred to a debt collector.
Your options may be limited, but you still do have some options available to you even when you have more debt than you can handle.
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