With all the talk of the United States government considering a raise to the federal debt limit, it should give Americans the opportunity and desire to revisit their own debt limits.
Personal Debt Limit
So the question then becomes, what is your family’s debt limit and should you ever go past it into uncharted territory?
A debt limit lets you know just how much money you owe to someone else. Some people just look at personal loans, credit cards and car loans when they calculate this figure. Others include their mortgage as well.
No matter what you consider to be your debt, there should be a limit to how much you can owe. This prevents you from getting in over your head and owing more than you can ever pay back.
Each individual and family needs to determine their own debt limit. For two people with the exact same expenses and the exact same income, they may end up with differing limits.
Part of the calculation is numbers and figures and the other part is just a person’s peace of mind.
Look at the amount of income that you receive per year. Look at the expenses that you cannot live without. These include items such as rent or a mortgage, food, utilities, etc.
From here, look at the amount that you already owe and how much you are paying per month to pay off the debt. Can you afford to make any more payments?
When you begin to figure your own debt limit or ceiling, you look to see how much you are paying per month on credit cards. One of the problems with this number is that it is constantly changing.
You may be paying $100 per month now, but after just one late payment or underpayment, you could be in over your head with late fees as well as a rising interest rate.
As you look into your current debt situation, it is important to prioritize your debts. If you already have a credit card and you want to obtain another, do you mind running the risk of not being able to pay for the first one? For many people, this exact scenario takes place.
When prioritizing, if you want to add more debt, consider paying something off first. This ensures that you don’t go over your debt limit and you stay within your means.
Everyone has those times when an emergency knocks them down. They have the best plans in the world, but there is no way around picking up some debt along the way.
In this case, be sure to shop around for the best rates and the best incentives if you are planning to apply for another credit card.
You want to get the most out of the debt as you can. Do your best to charge only the necessities during this time and as soon as possible, pay down balances until you are once again down to your previous debt limit.
Sticking within your debt limit will give you peace of mind, knowing that you are living within your income and have room to adjust should circumstances change for the worse.
Guest post by MSM