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Managing the limits of personal debt

As lawmakers try to balance trillions of dollars in government revenue and expenses, a recent article in USA Today may be helpful to individuals in Washington D.C. and the surrounding areas who want to take a look at how they manage their own consumer debt. The Bureau of Economic Analysis reports that Americans still carry more debt than most can afford.

The bureau noted that consumers spent more using credit cards in April of this year than in any other month in the last three years. Total household debt for the first three months of 2011, which includes mortgages, exceeded $11 trillion.

The National Foundation for Credit Counseling encourages consumers to figure out what is affordable by controlling what proportion of income is allotted for certain expenses. Counselors recommend that a mortgage or rent should not go above 30 percent of monthly income. Additional monthly bills, like car and credit card payments, should be contained to no more than an additional 20 percent.

Money advisors say having a respectable credit score has become vital for more than just the future use of credit. It has become a must-have for necessities like jobs and housing. A credit report is a snapshot of how well an individual manages money for lenders, landlords and potential employers. A Society for Human Resource Management survey found that more than half of all employers check the credit reports of potential new hires.

How long an individual is in debt is as critical as how much debt a consumer accumulates. Financial planners say debt loads, outside of car and house payments, should be satisfied within 18 months. One financial advisory firm warns that consumers who dive into debt that takes longer than a year and a half to pay off are living too far beyond their means.

Source: USA Today, "5 tips for staying under your own debt ceiling," Dave Carpenter, 16 July 2011

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