How to reduce debt is relatively easy when you follow a few basic tricks, and debt calculations, to help you see when your debt load is leading to the danger zone. Debt is not bad at all if you know how to use it. You should learn how to avoid the pitfalls to stay free of stress brought about by a creeping debt.
You should be aware that creditors use budgeting guidelines in the assessment and approval of credit applications. If your debt exceeds the parameters in their recommended guidelines, then you have a higher chance of your credit applications being denied. Use the following recommended budgeting guidelines (the same ones used by Financial Institutions) to review the items in your budget:
1. Housing should take about 35% of your budget;
2. Transportation takes 20%;
3. Other expenses 20% that includes:
Mortgage or rent, taxes, repairs, improvements, insurance, and utilities;
Monthly payments, gas, oil, repairs, insurance, parking & public transportation;
Food, insurance, prescriptions, doctor & dentist bills, clothing
4. Debt payment takes 15%; and
5. Investments & Savings covers about 10%.
Get the ratio of your debt and your income. You should know the importance of your debt load to your overall financial status. Your debt income ratio is the percent of your monthly take- home pay that goes to paying debts. It can be calculated by taking the total amount you needed to repay your debts each month and divide it by your net take-home pay. Remember to include only the actual amount that goes to debt repayment in the calculation.