As long as credit is easy to receive, debt will continue to walk with us through life, taunting our every move and aggravating our very existence.
Some debt advisors state that the total amount of debt accrued per month in credit cards, loans, mail order catalogs etc., should not exceed any more than 36% of our gross monthly incomes. This is the maximum target level a mortgage lender will allow while assessing a potential borrower.
What is the best next step to take?
The secret to using debt to your advantage is to make sure that you buy assets which will increase in value. For example, a mortgage will allow you to live in a nice home with the hope of making a profit from it in the future. A student loan will allow you to study for a good job which will bring you many financial rewards.
Instead of using credit for profitable purchases like the above, most people use their cards to purchase everyday items which decrease in value the moment that they are bought, for example, food or clothes. If you do have to revert to your credit card for these goods, you should pay your total balance in full to avoid interest charges.
A credit card should never be used to finance a holiday as a holiday does not appreciate in value. Add to this a card with a high interest rate and you are dabbling with bad debt. An ideal debt to income ratio should not rise above 20% of an annual income when calculating personal loans, credit cards, utility bills etc. Figures that rise above this mark are likely to turn creditors away, even if payments are maintained.