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Do you pass the 20% Test?
Henry is a manager for a retail store. Despite working hard and bringing home a good salary, he can't make ends meet. Let's take a look at his monthly expenses.
Monthly Debt Payments
Student Loans: $250.00
Credit Card #1: $615.00
Credit Card #2: $500.00
Car Loan: $250.00
Total: $1615.00
Monthly Income
Henry's take home pay, after tax and insurance deductions, is $2600
After paying his debts, Henry has less than $1000.00 a month for rent, food, gas and utilities. Henry is spending 62% of his monthly income to pay his debt.
Where do your debt payments fall in your monthly budget? If you are paying more than 20% of your monthly income toward non-mortgage debt, you're in the danger zone, and you need debt relief.
Now, imagine if Henry was able to pay off his credit cards and car loans. He’d have an extra $1365.00 in his pocket every month! With that kind of disposable income, Henry would be able to fund his retirement, a down payment for a home and enjoy movies and dinners out without using credit.
Paying off credit card debt and other debt can seem like a daunting task, but you can do it, and you don't have to do it alone. Consider calling a non-profit credit counseling agency to discuss your options. A credit counselor can quickly assess your monthly debt-to-income ratio and describe options available to you to jumpstart your 'get out of debt' goals.