AVOID DEBT BEFORE IT HAPPENS
Usually a lack of thorough planning leads a person into debt.
Without some kind of financial plan (a budget), most people don't
realize they have a problem until it overwhelms them. Three of
the most common ways to get into debt are the purchase of a home,
the purchase of a new car, and unscheduled disasters.
Before these traps can snare you, consider the following:
- Nearly everyone dreams of owning their own home. Many young
people try to buy a home too soon, or pay too much, and end
up in financial trouble. The percentage of an average
family's budget that should be spent on a house payment is no
more than 25% of net spendable income (after tithes and
taxes). Add to the mortgage payments the cost of utilities,
insurance, maintenance, and incidentals, and the percentage
climbs to around 35%. Don't go over this percentage.
- If you wreck your budget to get into a home, that makes no
sense at all. Better to save for a down payment of at least
20% and buy a smaller, less expensive home initially. The
purchase should never be based on combined incomes (for
couples), for if one income fails the entire purchase will be
jeopardy.
- Someone who can't qualify to buy a home often springs for a
new car as a compromise. It's not a good choice with the high
cost and short life of most cars. Many people are so prone to
debt-buying that they don't even ask the price of a car -
just the monthly payments. The automotive industry
understands this mentality. Low interest rates are often the
biggest selling feature. Consider that the re-sale of a car
is minimal compared to the investment.
- Consider purchasing a good used car, one or two years old.
The major depreciation has already taken place, and usually
the bugs in the car have been discovered and fixed.
- Plan for predictable expenses. Include this in your budget.
Predictable expenses include car repairs, career clothing, or
medical expenses. Then, when the inevitable happens, you will
be prepared and not have to resort to the use of credit cards
or loans to cover their cost. Don't forget to budget for
vacations, too.
- Don't assume that it's OK to be in debt. There is an
alternative.
From Debt-Free Living: How to Get out of Debt (And
Stay Out) by Larry Burkett. Copyright (c) 1989 by
Christian Financial Concepts. Used by permission of
Moody Press, Chicago, Ill., 1-800-678-6928.
© 1997 vinebranch@hotmail.com
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