How much of your income should go to paying off your debt?

 Posted on September 29, 2022 in General Bankruptcy Topics

As you have probably noticed, virtually everything costs more now than just a couple of years ago. In fact, according to reporting from Time, inflation has kept the prices of everyday items at near record levels. If you do not have enough cash to pay for gas, utilities, groceries and clothing, you may have little choice but to use your credit cards.

Even if you try to stay on top of your finances, consumer debt can sneak up on you. Before you know it, you may not be able to pay even the minimum amounts due on your credit cards. So, how much of your income should you devote to paying off your consumer debt?

Your budget

Before knowing how much you can afford to pay credit card companies, you must come up with a budget. To do so, determine how much you spend each month on rent, utilities, food and other essential expenses. Then, see exactly how much you have left over.

Your ability to pay

Obviously, it usually makes sense to make at least the minimum payments to the issuers of your credit cards. If you only do that, though, it may take years for you to completely pay off your consumer debt. By budgeting, you may have enough remaining to make extra payments toward the principal debts you owe.

If your debt accounts for more than about 40% of your income, you simply may not be able to budget your way to financial freedom. Ultimately, if you feel like you are drowning in debt, it may be appropriate to consider all your available debt-relief options before you miss a single credit card payment.