FACT SHEET PUBLISHED BY THE FAMILY AND CONSUMER SCIENCES DIVISION By Jennifer Garza, Program Specialist Reviewed by: Dr. Joyce Cavanaugh Christopher Cotton February 2017
Dodging Financial Setbacks
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any Americans struggle with understanding and managing money. Debt has become a part of life, which is not necessarily bad. But, having too much debt can lead to problems. To see how much debt you have, add up all your monthly bills from car loans to student loans including credit cards but not your mortgage. Divide the total amount by your monthly take home pay. This is your “debt ratio”. It is important to keep your ratio at 10 percent or less. Your total (mortgage and nonmortgage) debt must remain at or below 36 percent of the money you bring home.
There is good debt and bad debt. The good debt may be borrowing to buy a home or get an education because these provide financial benefits. Bad debt includes borrowing for vacations or furniture-- things like that usually decrease in value. Avoid high interest loans such as pay day loans. While credit cards are useful, avoid the temptation to overuse them. Spend responsibly. Keep one or two credit cards, avoid charging big ticket items, and pay off credit cards monthly (or pay more than the minimum). We recommend leaving your credit cards at home unless you can afford to pay them off when the bill arrives. (US Department of Labor) If you need help getting out of debt or paying off credit cards, a credit counseling service can help establish a plan with your creditors.
Five Suggestions to take Financial Control
1. Set a monthly Savings Goal Invest in yourself and commit to paying yourself first. Have these funds deposited directly from your paycheck. 2. Emergency Fund Slowly begin setting funds aside in case of an emergency so you have at least six months of living expenses. 3. Plan for Spending Set money aside monthly for vacation and holiday spending instead of borrowing the money. 4. Retirement Set money aside for retirement in an IRA or Roth IRA even if you have a retirement plan at work. 5. Pay Down Debt Save time and interest by paying more than the minimum on your highest interest debt. When that is paid off, put all of the money toward the next highest rate debt. Continue until you are debt-free!
This work is supported by the USDA National Institute of Food and Agriculture, 1890 Extension Formula Program. The contents are solely the responsibility of the authors and do not necessarily represent the official views of the USDA or NIFA. (References: US Department of Labor and The Mint) Prairie View A&M University, Prairie View, Texas 77446 * 936-261-5113
Strong, healthy families are the foundation of American communities, and family and community well-being is a shared priority of all Americans. Through research and education, the Prairie View A&M University Cooperative Extension Program’s Family and Consumer Sciences component help strengthen families and communities. Family and Consumer Sciences area of focus include Nutrition and Childhood Obesity, Food Safety, Health and Wellness, Parenting, Financial/Money Management, and Bullying.