How do you know when a little “acceptable” debt becomes a potentially dangerous situation? For some, the crisis is clear, but for many, the clues are subtle.
As a general rule, no more than 20 percent of your disposable income should go toward debt payments (not including your mortgage).
Quiz: Assess your debt situation
Take this quick quiz to assess your current debt situation.
- Is an increasing percentage of your income going to pay off debts?
- Is your savings cushion inadequate or nonexistent?
- Are you near or at the limit of your lines of credit?
- Can you only make the minimum payments on your revolving charge accounts?
- Are you extending repayment schedules – paying in 60 or 90 day bills once paid in 30?
- Are you chronically late in paying your bills? Are you paying bills with money earmarked for something else?
- Are you borrowing money to pay for items you used to buy with cash? If you lost your job, would you be in immediate financial difficulty?
- Are you unsure about how much you owe?
- Are you threatened with repossession of your car or credit cards, or other legal action?
If you answered “yes” to any of these questions, you should give pause for thought. While a single “yes” is not a sign of impending doom, it may be an indication that you need to make a change.