Before making the decision to add more debt, you need to make sure that you:

*Allocate sufficient money for your essentials.

*Borrow only for items that you need and can afford.

*Borrow only if you're spending less each month than you take home.


1. Start with your monthly take-home pay.

This is the amount you have left after taxes and other deductions have been made.

2. Subtract the amount you need for necessities and fixed expenses.

This includes savings, your mortgage or rent payment, utilities, food, transportation, child care, medical care, clothing, and recreation. Include payments made on a quarterly, semi-annual, or annual basis, such insurance and taxes.

3. Subtract monthly payments for existing loans and credit cards.

4. The balance is the amount you can safely apply to debt repayment.

Avoid thinking you can spend all this amount, since emergencies do occur, and you may not wish to use your regular savings account to cover small, unexpected expenses.

Monthly Take Home $ _______________
Fixed Expenses ---- $ _______________
Loans/Credit Cards ---- $ _______________
Amount Available For Additional Debt $ _______________


Moral of the Story: If you're planning to buy a new house or car, pretend you have already done so and start “making the payment” but to yourself. Within a few months, you'll know whether or not you can really afford it and you'll have some money set aside for repairs, etc. when you actually do make the purchase. If you can't make the pretend payment, you certainly won't be able to make the real one consistently. Time to go back to the drawing board and figure out what else you're willing to give up in order to have the new debt.


HOW TO MANAGE CREDIT CARD USE
Many people find themselves with credit problems because they don't keep track of purchases they make with their credit cards. A simple method of keeping track of monthly credit card charges is to:

1. Determine the total amount you can responsibly charge on all your credit card accounts during that month.

2. Keep track of your credit spending in the same way you maintain a running balance of your checking account.

3. Subtract each amount charged from the monthly charge limit you set.

4. Stop using your credit cards if you draw this balance down to zero.


About the author:

Cindy S. Morus (www.phelps-creek.com) is a Certified Financial Recovery Counselor specializing in showing women and their families how to achieve financial well-being and peace of mind. She is also a Certified Credit Report Reviewer and Get Clients NOW!™ licensee. Contact her at 541-387-2995 or cmorus@phelps-creek.com She is also the publisher and editor of "Financial Fitness", an internet gazette dedicated to helping people improve their financial fitness no matter what decisions were made in the past.