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Debt To Income Ratio Living On Base    Debt Service to Income Ratio Living Off Base

Debt is a fact of life. Turning on a light switch, a water faucet, or driving your vehicle creates debt; there is no escaping debt. You will have to deal with debt your entire life. Keeping your debt manageable should be a goal. Stop attaching emotions to debt by thinking of debt as bad or good; debt is neither your friend nor your enemy, its debt. Yes this is a new concept for everyone to grasp, even the financial services industry. Everyday we read and hear about good-debt versus bad-debt like it’s a ball game, this is wrong and like we state, we won’t teach academic theories just because they’re in a text book, because most don’t work. Debt is manageable or unmanageable, a simple concept to grasp and the correct way to think of debt.

When debts become unmanageable you have a problem, and for service-members this could become a big problem, especially if you’re dealing with a security clearance or debt-collector calling your first-shirt asking for payment.

So how do you know if your debts are manageable or unmanageable? Most households know when their debts become unmanageable. It creeps up slowly and suddenly it slugs you in the gut. A few symptoms of unmanageable debt: Financial stress, arguments about the finances, juggling which bills to pay late, creditors calling for payment, you can’t sleep worrying about how the bills are going to get paid, afraid to answer the phone or get the mail.

How do you know if you can take on more debt? Use our “General Guidelines” that are in our books and use our debt-To-Income ratios we attached in this section.

Debt Priorities:
  • Secured Debts are debts secured with collateral; the most common is a home or vehicle. What debts must be paid first will be a case by case, month by month bases. Such as an un-paid child support or alimony, money owed to a bank or any legal judgment against you, these may move to the top of the list very fast. The courts may allow a creditor to raid bank accounts. If you receive a judgment, you should always go to court. The Servicemembers Civil Relief Act (SCRA) will help service-members in such cases where a deployment, or service related absence makes a court appearance not possible.
Bills that should be paid before paying your unsecured (Credit Card) debts:
  • All secured debts
  • Legal debt obligations, such as child support, etc
  • Household Utilities, including insurance contracts
  • Make sure there is food in the house
These debts take priority over unsecured credit card debts or home furnishings on contract. Dodging your debts is not an option. A service-member must show good judgment and character by paying per the terms and conditions agreed to when signing on the bottom line. We will give you an option which may help meet your unsecured debt obligations, but by no means is “dodging” your debts.

Credit Counseling, Debt Settlement, Loan Consolidation:

1. Credit counseling from a non-profit Consumer Credit Counseling Agency, CCA. Yes, this is a good option for your unsecured debts; a CCA usually won’t work with secured debts or debt collection agencies.

2. Debt Settlement companies. No, this is not a recommended option, for details (Read our Books).

3. Loan Consolidation for debt pay-off. No, this is not a recommended option, for details (Read our Books). There are many financial institutions that advertise in military financial magazines and in base newspapers. Their advertisements mislead people to believe they are affiliated with, or approved by the military; they claim to be military friendly, they snare thousand of service-members each year with high interest (predatory, in our opinion) loans.

Keys to paying off debt:

1. Know your Values, Goals, Sacrifices, for details (Read our Books)

2 Build a weekly or monthly spending plan looking for areas to reduce costs:
  • Re-quote your insurance or adjust your deductibles
  • We’ll bet you are over spending on your cell phone and entertainment.
  • Look at your Flexible expenses for monthly cost savings.
  • Adjusting your W-4 withholdings, this will impact your paycheck.
  • See a good financial counselor, we always find savings in every budget that can be put to work for savings and paying of debt.
3. Have your revolving savings account in place and allotments to your Emergency savings started, for details (Read our Books).

4. You may need to reduce your contributions to your Thrift Savings Plan until you get ahead of your debt, then re-adjust back.

5. Have a debt pay-off strategy, we recommend using a simple approach, which is the Debt Snowball. The reason is because it’s simple and it works. There are other strategies that may work well for you. The Power Pay method, the debt avalanche method, they all will work, we believe some better than others. Most of academia recommends the debt avalanche, which is paying your debts based on interest rates; in theory you will spend less in interest, in real life things never work that way because interest rates change. Which ever you choose, or a combination of all of them, set a goal and stick with it.

Paying off debt is never an all or nothing approach; never use all your savings to pay off debts. If you haven’t established savings and expect a large income tax refund, use this refund to establish savings first, and then take a balanced approach to pay off your debts.

  • Savings always comes first, and then focus on debts using balance
  • Stay clear of the infomercial promising a quick fix to your debt problem, they don’t work
  • Learn your consumer legal rights at the FDIC, or the FTC website, don’t become a victim because of your lack of knowledge, this isn’t rocket science
Remember: Never take financial advice from anyone who has a vested interest in you signing on the bottom line, President, Phillip Day

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