For some people managing debt is not a problem, while for others it is a perpetual albatross around their necks. Managing your debt is key to keeping your finances healthy and robust. If you need assistance or have specific questions about debt, talk to a credit counselor or financial adviser.
Debt
Debt is a double-edged sword. It allows you to buy things you normally wouldn't be able to pay for, but it also limits your ability to buy things in the future. Buying a house, for example, would be nearly impossible for most people if they had to come up with the entire price of the home without getting a home loan. On the other hand, taking out too large of a loan can cripple you by being forever indebted.
Managing Debt
While debt in and of itself is not something that is necessarily good or bad, getting into to much debt is often the first step to financial difficulties. There are several ways to determine if you have too much debt, but one key benchmark is your debt-to-income ratio, or DTI. Your DTI represents how much money you earn each month and how much you spend. For example, of you earn $10,000 a month and spend $4,000 on debt payments, you have a DTI of 40 percent. In general, Bankrate recommends you keep your DTI to 36 percent or lower.
Evaluating Debt
When a lender gives you a loan, that lender makes money by charging you interest. In general, you want to pay the lender the least possible amount of interest, while the lender wants you to pay the most it can get you to agree to. To evaluate debt, you should always compare interest rates and loan terms from several lenders.
Getting Out of Debt
Debt is a means to an end, but people all too often use it without taking the long-term consequences into consideration. When you use a credit card, for example, you go into debt each time you make a purchase. The only way out of the debt is to pay it off. If you've fallen into debt problems, you need to develop a repayment plan that lets you get out of debt as soon as possible.
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