Debt consolidation can include mortgages and car loans, but the primary focus for most people is consumer debt. Consumer debt is somewhat malleable. Unlike a mortgage that can be rather structured, a credit card loan can go away with some logical debt management. It can also be at the ebb and flow of annual fees, rate adjustments, and new offers.
The Trick of Debt Limits
Credit debt is also abused for many of these reasons. It is easy to call and get a limit upgrade. The credit card company will actively promote it- and for a fee. Borrowers can have the great feature of being able to borrow more, if they pay for it as well as pay for the extra associated fees for the extended limit.
It can all get way out of hand way too easily. How can a borrower get a handle on the potential spiraling train of consumer debt? Some people need to borrow less with more money behind them.
A goal could be to limit debt to an area that is manageable. Many people have heard of the snowball strategy. It basically states that the most attention is placed on the lowest credit card. Once it is paid off, the finances that were going to that card are pushed to the next lowest, and so on.
The Monthly Income Metric
There is also a debt cap limit which can be applied. The total credit limit should not exceed the monthly income. It is a good strategy to have for individuals who tend to be a little reckless with their spending. If someone’s monthly income is $3,000, their total debt limit should be $3,000. It seems low, but if everything can’t be theoretically paid off in a month, it isn’t worth carrying. Some could argue that this is too high, especially since it is unlikely that all $3,000 made in a month can just be dropped on a credit card.
Keep it simple and less stressful by allocating debt evenly and logically. The above metric is useful in controlling debt ceilings, which some lenders may push higher and higher to encourage spending. Keep the limits low and manageable. Go here to find more information on debt consolidation.