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Book I: Taking Charge of Your Finances
Consolidating your debts: Debt consolidation involves borrowing
money to pay off high-interest debt and lower the total amount you pay
on your debts each month.
Getting help from a reputable nonprofit credit counseling agency:
Such agencies can help you develop your budget and may also suggest
that you set up a debt-management plan.
Filing for bankruptcy: Bankruptcy should always be your option of last
resort. When may it become your best option?
· If you're about to lose an important asset
· If your monthly expenses are so much higher than your income
that it will take years of sacrifice and bare-bones budgeting before
your debts are manageable and you have a little extra money left
over each month
Gauging your finances by using
standard percentages
Financial experts agree that, in general, your
basic living expenses and the total amount of
debt you owe (secured and unsecured) should
equal no more than a certain percentage of your
net household income. (Net household income
is your income after deductions for taxes and
other expenses -- it's your take-home pay.)
When you're developing your budget, one way
to pinpoint expenses to reduce is to compare
your numbers to the following standard per-
centages. When you have a budget, you can
also use the standard percentages to monitor
the state of your finances over time.
If your percentages are a little higher than the
ones on the following list, you don't necessarily
need to worry because certain expenses may
be higher in your part of the country. Housing,
for example, varies greatly from place to place.
Some financial books and Web sites also
may use slightly different percentages than
these; no one correct set of figures exists. These
percentages are just approximate amounts for
you to use as spending guidelines:
Monthly housing expense: 25 percent of your
net household income (35 percent if you take
into account homeowner's insurance, prop-
erty taxes, home maintenance, and repairs)
Consumer debt (credit cards, student loans,
medical debts, and so on): 10 percent of
your net household income
Utilities: 15 percent of your net household
income
Transportation: 15 percent of your net
household income
Savings: At least 10 percent of your net
household income
Everything else (food, clothing, medical insur-
ance, prescriptions, entertainment, and so
on): 25 percent of your net household income
