Even though borrowing money might come across as handy, it can become something that is bad and stresses you out completely. That is why taking control of your credit is a very important variable in maintaining your financial well-being.
Credit can literally either make or break you, as, on the one side, it could help you get ahead, while on the other side, it could cause you to become so indebted that you have no way of getting out of debt. This is exactly what you should try to avoid.
Do you have a credit problem?
The proof that suggests the answer to this question is sometimes far simpler than you may think. The signs, such as the following, are also relatively easy to recognize.
#1 A big percentage of your income is reserved to repay your debt
Every person has a debt-to-income ratio, which as the equation suggests, refers to taking on a bigger financial load than one can handle. To work out this ratio, you can divide your debt with your gross income. If a debt ratio ranks high, then you need to reduce your debt. A low debt ratio, however, will allow you to lower your debt, all while providing you with a better chance of getting access to loans or credit.
#2 You borrow money to repay your debt
If you must borrow money to repay your debt, the reality is that you don’t have enough money to pay off your debt. Although borrowing money to pay off your debt seems like a good idea at the time of desperation, it’s something you should try to avoid, as this will only get you into a deeper cycle of debt, which will make it even more difficult to get out of.
#3 You don’t keep track of what you spend
Anyone who knows how to keep track of their income and expenses knows that they need to document everything they earn and each bill they need to pay. Working out a detailed plan/ budget from how much you must spend and how much you’re allowed to buy on credit, will allow you to avoid making credit that you can’t afford.