| Are you planning on going to college? Are you already | | | | guideline, a ratio of 0-20% is considered excellent to |
| at college? Perhaps you already graduated and now | | | | acceptable. Anything above 21%, or even approaching |
| you are seeking the best course of action to repay | | | | higher figures is considered difficult to manage and |
| that student loan? | | | | your application for a loan with a high debt-to-income |
| The bottom line is you are really on your way toward | | | | ratio may not be successful simply to protect yourself. |
| a better future for yourself and your family by | | | | Keep Your Level of Debt Low |
| investing in higher education. Smart borrowing saves | | | | There are many reasons to keep your debt level as |
| you money and ensures you are financially prepared | | | | low as possible; high debt can have a severely |
| to take the next step. | | | | adverse impact on your lifestyle not just in the |
| Before You Borrow | | | | immediate future but for years to come. Managing |
| Before you need to start borrowing money, take a | | | | debt can be a challenge, but follow these handy tips |
| look at what grants and scholarships are available for | | | | and you will be on the road to successful financial |
| your course. Often, college grants and scholarships are | | | | management. |
| available within your region, state, or countrywide and | | | | Number one tip: Avoid debt by paying cash or using a |
| from a variety of sources. Take advantage of federal | | | | debit card whenever and wherever possible! |
| grant money or find other types of scholarships. | | | | More tips: |
| If you do need to borrow then apply for a federal | | | | 1. Create a budget and stick to it. There re numerous |
| student loan from the federal student loan programs. | | | | online calculators and money management software |
| Usually their interest rates are below-market rates and | | | | that will allow you to calculate your personal finances. |
| they offer flexible repayment options. If you think you | | | | 2. Borrow conservatively by accepting the minimum |
| are not eligible for federal student loans it is still worth | | | | loan amount absolutely necessary to cover your |
| making a few calls to be sure. To do this you will need | | | | student costs. Apply for federal student loans to begin |
| to fill out an FAFSA. | | | | with. Around 5-10% of your income is usually |
| Once you have tried the above two funding sources, | | | | considered the most reasonable loan debt level. When |
| you can apply for a private student loan to make up | | | | it comes to repaying your student loan, years later, |
| any difference in the total amount you require for your | | | | don't forget you will have other financial commitments |
| course of study. Private student loans each have their | | | | as well, such as living expenses, taxes and other |
| own requirements and features. | | | | debts. |
| Ensure that you only borrow what you can afford to | | | | 3. Credit cards can be useful if used when absolutely |
| pay back, now and later on. Don't borrow more than | | | | necessary. However, careful usage of your credit card |
| you really need. To know what is too much you need | | | | is better because it is often easy to mount up a huge |
| to assess your debt-to-income ratio. Most, if not all, | | | | debt on impulse purchases and then find yourself in |
| lenders use this principal calculation to assess your loan | | | | difficulties repaying the amount. Even a card with a |
| application, so it makes sense to work it out yourself | | | | low interest rate can prove to be expensive if |
| beforehand. | | | | repayments are not carefully controlled. |
| Your debt-to-income ratio is the comparison between | | | | Don't use more than one card. One is enough and will |
| your monthly earnings and what you owe. It is a | | | | be sufficient to attain as great credit rating. |
| snapshot of your financial health. | | | | To avoid using credit cards: |
| To work it out is happily a simple calculation: Divide | | | | - Limit yourself to owning a single, low APR card. |
| your monthly minimum debt payments (not including | | | | - Use the card for emergency purposes only. |
| mortgage or rent) by your gross monthly income | | | | - Keep your credit limit modest; don't accept rises in |
| salary. | | | | your spending limit. |
| So, if your example you earn $2,500 a month gross | | | | - Pay balance full balance each month as often as you |
| income, and your outgoing commitments include $170 a | | | | can. |
| month in student loans, $140 on credit card | | | | - Ask yourself if you REALLY need to buy that item. If |
| repayments and $320 on a car payment then your | | | | not don't, don't buy it! |
| total monthly debt repayments are $630. Therefore, | | | | A credit card is supposed to be a convenience, not an |
| 630 divided by 2,500 = a ratio of 25.2%. | | | | endless supply of free-to-use money! Use it but don't |
| Knowing your debt-to-income ratio is one of the best | | | | abuse it, and stay in good financial order not just as a |
| ways to assess your fiscal fitness. As a very general | | | | student as long after you graduate too. Good luck! |