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Learn How Debt Impacts Credit

It can be a challenge to keep debt in change. There are always a lot of demands on family budgets. Unanticipated medical expenses, an unexpected car repair, or rising home heating fuel costs can quickly create financial pressure. While it’s tempting to turn to credit cards to address such expenses, if you begin to financially plan now you can reduce your reliance on credit to handle emergencies. A good guideline to follow is the 70-20-10 rule. In budgeting your monthly expenses, allot 70 percent for living expenses such as rent or mortgage, food, utilities, clothing, and gasoline. Save or invest 20 percent of your income for financial goals and emergency expenses. This 20 percent can be divided into retirement savings and savings for specific goals such as a vacation or to purchase a large-ticket item. You also can begin an emergency savings fund. A good long-term goal for this fund would be to save three to six months of living expenses in that account. Don’t be disappointed if an emergency arises that causes you to withdraw some of the money--that’s what it’s there for. However, don’t withdraw money for impulse buys. By getting into a saving mode you will find you rely less on credit and loans to make your purchases.

The remaining 10 percent is dedicated to debt payments. This includes debt such as credit card payments, and car and student loans.

Following the 70-20-10 rule requires you to work to live within your means. If you must devote more money to living expenses, then you will have to reduce some of the funds dedicated to savings or debt payment. However, work to avoid spending more than your monthly income.

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