If you’re not careful, borrowing money can end up costing you more than interest. Good management and proper planning is the difference between a spiral of debt and a manageable debt. So work out what’s reasonable and set a plan to pay it off. Try to keep your collected debt repayments below 25% of your gross income if you can.
What can you give up?
There’s often a big difference between what you can borrow and how much you can comfortably take on. Banks are happy to lend you the money if they think you can pay it back but sacrifices to your lifestyle need to be seriously considered. What can you give up? Why not work out your repayments before you borrow and see if you can save the equivalent amount before you apply for a loan.
Changing personal circumstances
How secure is your job? Where could it be in a year or two? What if there’s a GFC mark II? As boring as it sounds, all these sorts of things need to be considered before you enter into any payment arrangement. Other considerations include when are you planning to retire? Are you dependant on bonuses, sales commissions or rent? Are you going to start a family? Are you planning to start your own business? So many questions!
Is that the pitter patter of little feet?
Well is it? While babies are a wonderful precious gift they’re not cheap and life will never be the same. Aside from lack of sleep you’ll notice a lack of money especially if one of you has stoped working. And that one-bedroom flat? Well it’s going to start to get very tight very quickly; a bigger house or even an extra car may be the answer. Then there’s all that extra furniture for the kids’ bedrooms and play area plus school fees down the line. Phewww! Use the baby budget planner to calculate the costs.
Know your breaking point
You might be able to afford repayments with interest rates locked in at today’s rate but could you still afford them if they start to rise and stay that way? And have you been totally honest with yourself and accounted for all your debts like that car loan from mum or that promise to buy into a business? And how’s your credit card debt travelling? In other words know your breaking point.
Is your collected debt repayments below 25% of your gross income?
Related links:
