NBC6 News
http://www.nbc6.net/news/17285887/detail.html
MIRAMAR, Fla. -- One reason so many people are having financial difficulties might be that they don't know enough about some very basic rules regarding good credit and debt practices.
The Debt-O-Meter quiz was put together by respected financial Web site BankRate.com.
"The BankRate.com Debt-O-Meter test is designed to gauge your knowledge and possibly open your eyes about sound debt management," said Greg McBride of BankRate.com.
The questions cover issues such as, "How much debt as a percentage of your income should you safely carry to stay in good financial shape? 70 percent, 50 percent or 35 percent."
"It's still an excellent rule of thumb for consumers that all debt payments, including the monthly mortgage payment, should not exceed 36 percent of your monthly income," McBride said.
One big factor in determining your credit score is how much debt you should have relative to the total amount available to you.
"In particular, you want to keep your credit card balances below 30 percent and, even better, below 10 percent of your available credit," McBride said.
Your credit score can affect your employment, housing and utilities.
Another question reads, "True or false: Having a high credit rating can save you 20 to 50 percent on car insurance." It's true.
Lots of people who bought cars with payments that they could not afford are having their cars repossessed.
The Debt-O-Meter quiz asks, "What percentage of your take-home pay is the safe maximum to dedicate to car payments? Ten, 15 or 25 percent?" Fifteen percent is correct.
"What's always an eye opener for consumers is how long it takes to pay off a credit card debt if you make only the minimum payments," McBride said.
The Debt-O-Meter says: "You owe $10,000 on your credit card at 18 percent interest. Making minimum payments, how long will it take to pay off this card? Ten years, 20 years or 30 years."
The answer is 30 years.
"The reason for that is that the minimum payment declines as the balance declines. If you want to accelerate your debt repayment, make the same payment every month," McBride said. "You may get that same debt paid off in a three-year period."
Another question: "When you pay with a credit card instead of paying cash, you will tend to spend more money or less money?" More is correct.
"There are a lot of misconceptions among consumers that don't really know the impact of certain actions on their credit score," McBride said.
Does canceling all your credit cards except for one hurt or help your credit score? It can actually hurt. McBride said to keep the cards you have had the longest and those with the highest limits.
"If you don't do well on the Debt-O-Meter test, it's not necessarily a reflection of your credit score, but it does indicate that maybe you need to bone up a little bit," McBride said.
Take the Debt-O-Meter test here.
Original source: http://creditscorenewsaggregator.wordpress.com/?p=30
