How Much Debt Can Your Debtometer Handle?

People sometimes get in too deep with debt because they don't know when to stop taking on more debt. There's no thermometer or gauge that lets you know you're reaching your limit so it's easy to just keep charging and taking out loans until the banks cut you off. However, by the time that happens, it's often too late.

Debt creeps into your life. Minimum payments give you the false sense that you can handle more than you really can. Because you're only repaying a fraction of your debt, it feels like you can actually take on more.

Debt allows you to get used to living a lifestyle that's really outside of your means. For example, with credit cards and loans, you may be able spend $4,500 per month even though you only make $3,500. However, once your credit cards are maxed out and you can't take out another loan, you'll only able to spend your income, nothing more. But because you're used to spending $4,500 per month, you run into trouble when your debt lines are cut and you have to rein in your spending. The truth is that you could never really handle all the debt you were taking on, but the debt was giving you the false impression that you could.

Most experts say that you shouldn't spend more than 10% of your income on "bad debt" like credit card balances. Anything more than that is too much. Divide your income by.40 (a number that would get an average 4% minimum payment) to get an average amount of debt you can take on. For example, if your monthly income is $3,000, you could only afford to take on around $7,500 of debt if you want to keep your minimum payment around $300 per month. If you know you can't afford a higher minimum than that, avoid taking on more debt.

If you know what amount you can afford to pay on your debt, divide that number by.05 for a 5% minimum payment or.03 for a 3% minimum payment to decide how much debt you can handle. For example, if you can only manage a $100 minimum payment, then you can't afford to take on more than $2,000 of debt.

Remember the best way to stay out of debt is to pay your balances in full every single month, no excuses. With that reasoning, you really can't afford to take on more debt than the income you have left over after all your bills are paid every month. If you only have $100 left, you can only afford a $100 credit card purchase. And if you're living paycheck to paycheck, you can't handle any debt at all.

Not many people pay their balance in full every month. The benefit of having a credit card is that it's not required. If you know you're going to pay your balance over time, be smart about the amount of debt you can take on. Avoid making new purchases when you already have a credit card balance. Instead, pay off your current balance before charging more. Avoid creating a dependency on debt because it tempts you to forget your limit and charge to your heart's content.

Steve Dowell is an expert writer on subjects related to debt settlement and debt relief strategies like counseling and consolidation. Read more on his blog debtsettlement.com.

Do You Manage Your Debt Better Than the Government Manages Theirs?

Having a first row seat to observe how Washington DC handles money woes, and specifically debt issues, is enough to bring tears to your eyes. Or, to make you laugh hysterically. Whatever the case, it is a macro study of how NOT to deal with increasing debt. Let's just hope that all of us in our individual families show more sense and do a better job dealing with our own debt. Here is what it would look like if the government were contained in a single family:

George and Sally have been overspending for some time. During the recession, they have had a reduction in income. At the same time they increased their spending even more. Their reasoning is that you need to spend money to make money, so they have "invested" in their future by buying into several failing companies, hoping that one or all of them will rise from the ashes and save the day. Surprise, surprise... the crappy investments continue to stink.

In the mean time, Sally is getting uneasy about the fact that they are now spending 40% more money each month than they are bringing in. Their combined debt is quickly heading towards an unstable level, which would include a reduction in their credit score. In fact, lately they have been taking out credit cards so that they can make the minimum payments on older credit cards. All of a sudden, all of those low interest rate credit cards offers that they have been signing up for to pay their bills are threatening to increase the interest rates. It is easy to see that in their current situation it will not be long until they will default on their debt.

In the mean time, George, who is responsible for paying the bills, is holding in his hand a credit card offer of $20,000. This would represent the largest credit card they have ever had. And, he explains, they need that money to cover bills for the next year, or they may lose their medical insurance. Arguments ensue. Fingers are pointed. But, in the end they start looking at solutions.

George wants to look at increasing income. Certainly a viable solution, except their income is fixed. So, he proposes to take a monthly draw from their retirement investment to increase income. Sally points out that this is not an option, because it will weaken future income if they do that. She insists on cost cutting. This is where the kids start getting into the picture. Bill, who has not been able to find a summer job, is getting worried that he might have to reuse school clothes from last year. He protests and points out that this is unfair. Suzy, on the other hand, is arguing that she is going to have to pay for the debts if her parents can't get a handle on it. She wants to go back to bare minimum expenses until the problem is solved.

This article is not meant to offer a final solution. (I could, but that will be reserved for another article.) Certainly, a well thought out plan to increase income, one that involves increasing production, can be part of the solution. Cutting expenses is clearly the biggest issue. Throwing money at bad investments is never a good idea, so that must stop. The family would definitely have to eliminate some luxuries as a part of the process.

What is certainly not a good solution is this: Sally and George agree that they should take out the $20,000 credit card, but they agree that in the mean time they are going to find ways to increase their expenses at a slower rate. Nothing is set in stone, but they will be getting serious about it shortly. They agree to continue to discuss next month...

Get the picture? Heaven help us if our government doesn't wake up and make the necessary changes right now to change our future.

Volume 8 of Your Money Answers - How High Is Your Debt Ceiling?

We have seen over the past month, The Great Debt Ceiling Debate. No matter how you look at it; whether you are for or against it, you have to admit there were some pretty interesting discussion. I do believe that we are truly educated about the United States debt ceiling. Let me ask you a question. Can you raise your own debt ceiling anytime you like? I am reminded of the story from the Bible in 2 Kings 4:1-7. The Bible is still applicable today in solving financial debt problems. There was a certain woman who husband died who owed debt. The creditors were coming to take her sons away to make them slaves. She was distressed and really had given up hope until the prophet Elisha came into her life. Elisha gave her some key instructions to immediately lower her debt ceiling. He asked her an unlikely question, "What is in your house?" She responded, "I only have a jar of oil in my house." He told her to go and borrow as many jars as she could and pour the oil into them. She did exactly what she was told. She poured the oil into the jars until the oil stopped because she ran out of jars. Afterwards, she came back to the Elisha and asked, "What shall I do next with the jar of oil?" Elisha said these life changing words, "Go sell the oil, pay off the debt and live off the rest."

The revelation from this story is this: there is something valuable in your house that will immediately lower your debt ceiling. When I teach about finances, I have a debt truth. It is this: The breakthrough of debt is in your house. Most people ask me how they can identify those things that are keeping them in debt. You have to look at this with a spiritual and natural eye. Let's look at it spiritually, Proverbs 10:22 says, The blessing of the LORD makes one rich, And He adds no sorrow with it. What things in your house are causing you to have sorrow? Could it be your home, car, furniture, clothing, credit cards, or expensive electronic items? If one of these items is causing an issue, sell it! Don't allow it to take over your life.

Now look at it naturally. Here is a tool to analyze your wealth - net worth. Net worth not only determines your wealth; it can ultimately determine the health of your financial future. The net worth is composed of assets and liabilities. Assets include residences, automobiles, and items that have significant monetary value. Liabilities are short term and long term debt which includes bills, credit cards, real estate, and other properties in your possession. To get your net worth subtract total liabilities from total assets. There are three types of net worth: positive, negative, and sum zero. A negative net worth is the result of more liabilities than assets, which may mean too much debt. From the net worth picture, you can easily find what is giving you sorrow by identifying the specific item that impacts your budget.

We don't have the luxury like our government to raise our debt ceilings. Creditors will come after us quicker than the government. The government has years to pay even decades; you don't. The one thing that I have learned through this economic rollercoaster is that we truly have control over our money. Our control is in our hands, not the government, not Wall Street, nor the creditors.

Here is How To Get Out of Debt

The problem of indebtedness is a nightmare that many affected people are wishing and hoping they will wake up from. But, you see, it is not just a dream, it's a reality. It is something to consciously move out of.

In most cases the indebted person got "hooked" into the lifestyle of indebtedness due to financially risky behaviors. He uses credit card indiscriminately, got involved in loan transaction that has made life hell for him and he has no savings at all. The result of this unintelligent financial lifestyle is that he heaps upon himself debt that he is unable to pay. Hence he becomes overwhelmed by such debt. His debt is a bad debt.

In this kind of situation he can decide to file for bankruptcy. This option, however, is very costly and might be totally unnecessary. He might get the right financial expert from a debt management company to give him expert financial advice and help him negotiate with his loan company.

Whatever the case might be, I will advise that getting out of debt is a dream you should strive to make a reality in your life. Work towards attaining the kind of live that is free from debt. If you try hard enough you will attain this kind of lifestyle which will free you financially to do worthwhile projects without borrowing money for such.

I will be giving you some tips on how to get out of debt now, or as soon as possible.

1. Decide to clear your debt.

It might be hard to decide to be out of debt, but if you did you'll be glad you did in the long run. You will know the joy of being free from indebtedness. Believe me when I say that the feeling is a great one.

2. Seek advice from experts on how to get out of debt.

Get an appointment for counseling sessions with firms or companies that have the financial expertise in debt management to help you out. Try reading the right relevant book(s) with helpful or appropriate information on the subject matter (freedom from indebtedness).

3. Commit to the plan.

Be committed to the plan that you are supposed to follow to be free from debt. It might be a monthly payment or a decision to save a particular amount on a regular basis in order to pay your loan at the end of an agreed period//date. You might need to take on extra jobs to be able to pay your loan or debt. Whatever you will need to do to become debt-free, work hard at your plan to be able to achieve your aim-and on time.

4. Learn to 'imbibe the saving culture.'

Do not try to keep up with the Jones, cut your coat according to your size. Determine to put money away in your account on a regular basis to save for raining days. Most financial experts have advised unanimously that saving at least 10% of your earning is the path to riches for the salary or wages earner. How will this small regular percentage lead to wealth?

5. Do business or invest the savings.

The answer to the question posed in the fourth point above is to start a business or, invest in stock and other likely financial instruments that can help you to achieve your dream of getting out of debt forever.

The author is an enthusiast in loan and debt related issues, he has great resources to share on debt cancellation

IVA Or Bankruptcy: Which Is Best?

An IVA can be the answer for you if you are deep in debt and you live in the United Kingdom. This route out of debt is meant for people whose only alternative would be bankruptcy, so you need to consider the differences between these two options. An individual voluntary arrangement will still affect your credit, but it will not affect it for as long as a bankruptcy will.
When you become a bankrupt your credit will be affected for ten years. This is in a negative way, too, which means there will be nothing bought on credit for a very long time. It could even affect your chances of buying a home. An IVA will impact on your credit for approximately five to six years and it too is in a negative manner. However, after the five or six years you will have good credit again, be able to buy on credit and will probably be able to purchase a home if you want to.
There are other methods besides this arrangement for dealing with financial problems, but if you have had your wages come up shy and cannot make ends meet any longer then this is probably the best method. Debt management plans are the most common solutions, but if your debts far exceed your ability to pay them back, then you have to look for something else. There are rules to setting up an IVA as it is a legal contract. You must owe to at least three creditors and you must owe at least 15,000 pounds in credit cards and unsecured loans. With an IVA you cannot do it yourself but you must have an insolvency practitioner to set it up properly for you.
An IVA is a binding arrangement that is between you and your creditors. Your creditors will vote on whether to set up the arrangement or not. If creditors representing at least 75% of your total debts agree to it, then you will be allowed to put it in place and write off a big share of your debt. Sometimes as much as 70% can be written off but realistically around 50% is the average.
The amount you have to pay into the arrangement each month is decided by the amount of money you have available, so it should be affordable to you. Your finances will be examined to determine what disposable income you have and your creditors will be made aware of these facts before they vote on whether to go ahead. The amount that you will be paying back will be decided and then, subject to the approval of your creditors, it will be formally set up.
Creditors will usually accept an IVA even though you will be paying back a smaller portion of what you owe. The reason for this is the fact that they know you are in a financial bind and may have to file bankruptcy if they do not accept it. This could mean a bigger loss for them. An IVA benefits you and them. They will receive some of their money and you will only have to repay the amount you can afford.
The arrangement will normally last for five years. After you have paid for five years your debts will be considered to be settled and your credit will be restored. However much of your debt is left unpaid after five years is written off. If you own a home you may have to use the equity in the house to pay back your creditors. Your circumstances will be checked on occasion to see if it has changed. If you have an improvement in your circumstances you may have to pay a little more each month. It is up to the insolvency practitioner to decide if your payments should change. Your payments will never be more than you can afford to make each month.

You can find out more about how an IVA works on the Author's website, which provides recommendations for some of the most reputable companies and includes an IVA Form that you can use to apply.

The Overindulgence of the American Empire

Over the last 20 years there have been very defined economic trends that point to an eventual day of reckoning for the U.S. economy. A good example would be over the past decade the United States has outsourced the majority of its domestic manufacturing to foreign nations. Many can be found on the coast of communist China, others have fled to Mexico, South America, the Philippines, and Vietnam. The U.S. as a nation has opted out to become a massive consumer nation. This specialization in consumerism means for the first time in our history the personal savings rate of Americans has dipped below 0 percent!
The Credit Industry
The credit industry of today now trumps the manufacturing industry in total revenues. Our consumer crazed nation now purchases everything in sight using high interest credit cards in an effort to feed the hungry credit beast that has become a instant gratification devise. No longer do people save up to buy an item when they can have it up close and personal in a matter of hours. This buy now pay later mantra is even found in the largess of government where 40 cents out of every dollar is now borrowed to satisfy vast entitlement programs, spurious federal government bureaucracies, and new programs that have helped the government expand 28%.
The Entitlement Generation
America has created what is now being called the entitlement generation that has come to expect perpetually low tax rates to go along with low interest rates. It also expects unrealistically high government entitlement spending to go along with high investment returns. The new entitlement generation does not consider the concept of savings and sacrifice to be essential as it pursues any form of delight and fanciful delicacy on its radar screen. This type of mindset has setup in the American economy nothing less than a feeble house of cards that has become completely vulnerable to external forces that await our demise that it appears now will come sooner rather than later.
The Painful Truth
The sad painful truth is the great American experiment in free trade, capitalism, and democracy stands on the precipice of a self imposed economic calamity of its own making. After World War 2 American stood as the world's greatest creditor nation, while today, just over 60 years later, America now stands as the world's greatest debtor nation in world history. The United States now represents to the world a reluctant historical empire in total economic decline that has little chance of getting its financial house in order unless it goes cold turkey. This has little chance of happening because like all good credit addicts there is no pay off at the end of the road.
U.S. Military Over-extension
The Unites States, as of today, has more than 700 military bases located in 120 countries. That means our military is located in over half the world's nations. Acting as the ever vigilant global policemen requires an annual budget of over $600 billion U.S. dollars. That is almost ten times larger than China's $65 billion, 12 time larger than Russia's $50 billion, 120 times larger than North Korea's $5 billion, and 140 larger than Iran's $4.3 billion.
The American Military Machine
In fact, funding the American military machine costs more than all of the rest of the world's militaries' expenses combined. This will clearly be unsustainable in the near future and is typical of an empire that has become overextended. As our military forces start to withdraw from the 700 bases worldwide there will be no guards at the door of worldwide terror and wars of chaos will rear its ugly head. America will no longer be able to afford to be the world's policeman.
Foreign Creditors
The American Empire's economy has become so grossly indebted to foreign creditors that foreign countries own a very large amount of America's real estate wealth and hold vast amounts of our government bonds, China comes to mind. The repercussions of this large foreign ownership of American interests allows China and other nations seeking global resources to enter our hemisphere and nothing is said when they explore for oil, natural gas, etc. To allow this kind of leverage from foreign powers points right back at weak leadership at the top. So our indebtedness to foreign powers that have regimes that are not friendly to the U.S. leaves us in a highly vulnerable position at home and abroad.
Answers
Answers to this mismanagement of financial stewardship will not come easy to a nation that is used to being satisfied with easy acquisitions of its desires through easy credit card use. First and foremost Americans should be taught the austere management of their own financial resources through a savings account that can be grown through a payroll savings plan that goes directly into a no go account that cannot be touched until retirement. This would allow savings to grow from their job with a large nest egg at the end of their work years.
Credit Card Junkies
Allow only a few credit cards per household eventually paying off and eliminating your debt starting with the smallest credit card balance first. Economic classes in financial stewardship should be mandatory in every high school nationwide. Passing this class should be mandatory in getting your high school degree.
Raising New Revenue for the Government
The tax codes should be changed to reflect an across the board flat tax for every working individual in America and every business corporation with no tax loopholes allowed. A national sales tax of 1% should be instituted to raise funds for government employment projects to get the country working again and paying taxes. Lobbyist should not be allowed to pursue Congress with deals for special interest groups that want special treatment with tax loopholes. This should be disallowed and made criminal with hefty fines along the way. This would be a good start along the way to getting America's financial house in order getting back to the good old days of living within your means.