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Car payments, credit card payments, student loan payments, home loan payments, which is a large list of loan payments that a family or individual could make every month. Some of these loan payments may be around for 36 months and some of these loan payments can be around for 360 months. With all these payments that we can rack up, sometimes we believe what Clint Black sings in one of his songs “One More Payment and It’s Mine.” At Frontier Bank, we do not want our customers to stretch their credit out of line, so you won’t be far behind. We want to walk along with our customers so they can be successful, so they will not be singing sad songs about their debt payments, repossessions, or foreclosures. As individuals or couples, we can walk into debt little by little and before we know it, we are up to our ears in debt payments. How do we keep adding more and more debt? Sometimes we live like congress. We don’t live within our means. Debt starts to grow and takes up our most powerful tool to accumulate wealth and prosperity. A strategy to help you manage your debt load includes setting up a budget and sticking to it. The budget is a management tool for everyone to commit to and keep emotions out of the decision making on whether to purchase an item with cash or take out a loan or use a credit card. A budgeting tool that is free is Every Dollar. I shared this tool in my blog post “Balancing Debt Repayment and Saving: Finding the Right Balance.” To go along with the budget, loan officers at Frontier Bank use an underwriting worksheet when a customer applies for a loan. The underwriting worksheet allows the loan officer and customer to work together to underwrite the loan and make sure their monthly debt-to-income ratios are in line for housing payments plus all other consumer debt payments we may have. Your monthly housing payment should not exceed 28% of your gross income and the total of your housing payment and all your other consumer loan payments should not exceed 38% of your gross income. If you stay within those guiding principles, you should not need to use a credit card to stretch your credit out of line. If you stay within those debt-to-income ratios, you will be able to save 10-15% of your income for retirement as well as build up an emergency fund of 3 to 6 months of living expenses to pay for the real emergencies with cash, so you don’t exceed your budget. If you are thinking about making a major purchase and you know what you will need to borrow to make the purchase, Frontier Bank has several financial calculators to help you calculate monthly loan payments. The financial calculators are located on our website at www.frontierbank.com. Click on "Personal" and at the far right under "Additional Benefits" you will find the financial calculators. You can use these calculators to determine what the loan payment could be for a car loan or a home loan. We even have a Credit Card Payoff Calculator to pay off your credit card rather than make minimum payments on the credit card. Once you know the estimated payments for the purchase, you can plug those numbers into your budget to make sure the payment will not create budgetary problems in the future. This will create financial harmony. Life is better with less debt. Financial stress is created by too much debt in our life. Another blog to review that is on our website is “5 ways to Create Financial Harmony for New Couples”. It has a lot of good points to develop honest communication skills between everyone. Debt management is a simple step-by-step process. It includes preparing a budget and sticking to it. It also involves staying within the debt-to-income ratios. Remember the 28% housing debt to income ratio and the 38% total housing & other debt to income ratio. Follow the debt-to-income ratio guidelines and discuss with your spouse how a new loan payment will affect the budget, you will be able to manage your debt and not sing “One More Payment and It's Mine.”
David Lantz |