Personal Financial Tip Vol. 8 - Do the numbers

Two weeks ago we did a post "Know Your Number" about your credit score.

This week let's talk about knowing your debt service numbers.

In general, most consumer lenders look at your debt breakdown as follows;

Mortgage loan should not exceed 25% of your monthly income
Total debt (including mortgage) should not exceed 35% of monthly income

So for instance, assume you make $48,000/year or $4,000/month, your monthly debt service for housing should not exceed $1,000/month. The rest of your debt should not exceed $400/month.

I would offer that your 25% should income your real estate tax, insurance and PMI escrow amounts.

While the 10% of the remaining debt uses your minimum credit card payment as part of the additional debt, I would offer that to be in good financial shape you should take your credit card balance(s) divided by 12 (should result in a higher number) in your calculation.

Managing debt is difficult. Too often we all can be caught in the allure to "have something new and have it now". Remember Lay-a-way at the local department store? They were places you actually made periodic payment before you received your goods. With our US consumerism in full force, we are all subject to "have it now" message 24/7 & Lay A Way went extinct with the dinosaurs.

The good news is with debit cards readily available, we can now pay for many consumer items without carrying a lot of cash; making the need for credit cards less and less and thus keeping us out of the debt trap.