So, how much debt can you bear? Some experts say to never carry over any amount on your credit card from month to month; others allow 35% of your total credit limit; still more experts argue that you can carry up to 70% over each month on your credit card, depending on the purchase. (One thing we know for sure is that credit card companies will lower your credit rating if you carry more than 75% of your credit limit on your credit cards and lines month after month.)
With mortgages, it can get even more confusing. How much "rent" can you afford? 30% of your gross income? 40%, maybe? These kinds of calculations are difficult to make in part because where you live can mean big differences in housing. Cities like Vancouver, Toronto and Halifax cost a lot more than small towns when it comes to buying a home.
Even renting in big cities can cost a whole lot more than small towns. People are getting pretty savvy about those kinds of costs, of course, and moving to nearby small towns, creating bedroom communities within an hour or so of major city centres. But small towns are getting smart, too, and rents are shooting up in places where you might have paid a lot less only a few years ago.
Because rents and mortgages can vary so widely across the country, if you want to own at all or live in a decent apartment, you may have to re-jig those "expert" calculations to do so.
As for credit cards, most people under the age of 50 grew up using credit cards as sort of income-extenders, and it might be tough to bring them to a zero balance every single month. Especially during big spending months like Christmas, or early spring-summer months when there are often special events like graduations and weddings to buy for and attend.
So how do you decide whether you have over-extended yourself on your credit, or whether you can afford a line of credit, or what size mortgage you can juggle? Beginning with the expert guidelines is a good place to start. If you need 40% of your gross income to pay for a mortgage, try setting that amount aside each month by adding the increase to whatever rent or mortgage you're currently carrying. Feeling the pinch? Think smaller digs.
As for credit cards, what balance do you carry forward each month on your credit card? Is there always a balance, or do you frequently pay that card off-and keep it at zero-for lengths of time? If your cards are always at or near their limits, ask yourself if you are using that card to buy a 'better lifestyle'.
The interest you pay on carry-over balances is astronomical. It's well worth the time to read the small print on how your interest is calculated to find out what you really paid for the privilege of a slightly nicer pair of shoes, fancier wine, or trendier kitchen. As Steve Martin commented in "Father of the Bride" you may forego the lobster for the "cheaper chicken."
Author Resource:
If you are trying to pay off debt this year, but are struggling to make your many payments, a debt consolidation loan can help. If you have bad credit visit our Bad Credit Loans website for information. Visit our blog for more articles about Bad Credit and Debt.
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