Since no two families are alike, there are no hard and fast rules to determine how much credit you can handle, but there is a guide. No more than 20 percent of monthly take-home pay should be used for consumer credit, to stay away from feeling pressure, aim for 15%. Use the form to determine if your debt load falls below 20 percent.
You can save…if you shop around! Starting a new job? Need to spruce up your wardrobe?
Let’s say you spent $1,000 on clothing using a credit card charging 18% annual percentage rate (APR) interest and made the minimum payments to pay off the balance. It will take you more than five years to erase the debt, and your $1,000 wardrobe would actually double in price by the time you pay an additional $1,000 in interest. Using a credit card charging 12% APR interest, the wardrobe would cost you $1,500 – a savings of more than $500 in interest charges.
Moving to a new home? Need safer transportation? Need new furniture?
If you buy $2,000 worth of furnishings with a credit card charging 18.5% APR interest and pay off the balance by making the minimum payments, it will take you more than 11 years to repay the debt. By the time the loan is paid off, you will have spent nearly $1,934 extra on interest alone and would you have the same furnishings? Just like you are shopping around for a new car, home, furnishings or clothes, don’t forget to compare credit costs, including the following:
$ total finance charges (dollar amounts)
$ annual percentage rates (APR)
$ late fees
$ early pay-off penalty
$ annual fees ($0-$75+ each year)
$ security deposits (savings/collateral)
$ cash advance fees and
$ add-on insurance, protection or other services.