The 20/10 Rule: a financial rule for credit counselling

Want to know what the “20/10 rule of thumb” is? Look no further, as we have all the answers you are looking for! As for those of you who landed on this page with no intention of researching this topic, stay awhile and do some spontaneous research anyway. You never know when you or a friend will need this information in the future, so why not get a head start now for 2022?

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For starters, the 20/10 rule is a conservative rule of thumb for any other consumer credit, aside from a house payment. What exactly does this mean? This means that the total household debt (excluding house payments) may not exceed 20% of your net household income. (Your net income is the amount you actually “take home” after taxes on your paycheck.) Ideally, monthly payments should not exceed 10% of the net amount you take home.

For example, if you take home $60,000 a year, your total consumer debt can’t exceed $12,000, and your total monthly payments can’t exceed $500 a month.

What is the purpose of the 20/10 rule?

The main goal of this rule is to assist you in developing a structured plan for determining how much debt you should be carrying.Not only that, but this rule also helps you visually see how much you are spending and where you are spending it, helping you clearly set your financial goals for however long you want to use this rule.

There are cases when this rule doesn’t work for everyone right away. It all depends on how far into debt you are and whether that debt has reflected negatively on your credit score. It is important that when you plan to use the 20/10 rule, you speak with a professional who can help you with all your questions about how to pay off your debt and how to restore your credit to get better rates when paying off your debt. guilt itself.

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