| There's little doubt that we're borrowing more and | | | | per day on little things -- coffee, candy or |
| there's also little doubt that credit is one of the | | | | whatever. Instead, you set the money aside in an |
| great conveniences of modern life. That said, like | | | | account that pays 6 percent interest. The result? |
| Goldilocks you want to borrow the amount that's | | | | After 30 years there's almost $77,000 in your |
| just right -- and no more.So what's the right level | | | | account.There are any number of strategies to |
| of debt?The loan qualification standards used by | | | | save money, but let me suggest a practical |
| mortgage lenders are an important guideline. You | | | | approach. Look at your debts. Pick the one with |
| can typically get that old standby -- the | | | | the lowest balance, say a small credit card that |
| fixed-rate, 30 year mortgage -- if no more than | | | | requires monthly payments of $25. Save and pay |
| 28 percent of your gross monthly income goes | | | | it off. Then identify the next remaining debt with |
| for mortgage principal and interest, property | | | | the smallest balance. You now have $25 a month |
| taxes and property insurance (PITI). In addition, | | | | extra that can be applied to the second obligation. |
| as much as 36 percent of your gross monthly | | | | Save and pay off the second debt. Maybe with |
| income can go to regular monthly costs -- PITI | | | | the second obligation you can save $50 a month. |
| plus car payments, credit card debt, school costs, | | | | After the second debt is repaid, you have an |
| etc. In addition, because they have more liberal | | | | additional $75 a month to attack the third |
| qualification standards, you can often borrow | | | | debt.During this process there are other steps to |
| more with other loan programs such as FHA, VA | | | | take. Bring lunch to work. Have one car (hard in |
| and adjustable-rate financing.But no matter what | | | | some areas, but not impossible). Collect change at |
| type of mortgage financing you consider, the real | | | | the end of the day and deposit rolls of coins |
| question should be not how much can you | | | | every month or so. Eat out -- but not often. Stay |
| borrow, but rather how much can you borrow | | | | away from credit cards. Avoid late fees and |
| comfortably. In other words, financial sanity | | | | maintain good credit by paying bills in full and on |
| counts.Unfortunately the term "financial sanity" is | | | | time.As this process continues you'll notice several |
| an expression without a definition. The economics | | | | interesting results.First, borrowing for real estate |
| that work for the Webbers plainly may not work | | | | becomes easy as debts decline and qualification |
| for the Johnsons. We each have different | | | | scores rise.Second, better credit results in reduced |
| incomes as well as different interests, expenses | | | | interest rates that can save you big money. Save |
| and preferences. Given this background one might | | | | a half percent as a result of good credit on a |
| ask: What makes financial sense for me?The | | | | $300,000 mortgage and you'll cut costs in the first |
| answer looks like this: If you're living from | | | | year of the loan by nearly $1,500.Third, there's no |
| paycheck to paycheck, if monthly costs are a | | | | tax on "savings."If you have $1,000 in credit card |
| burden, if savings are small or non-existent, if you | | | | debt and auto costs each month, that money is |
| do not have health insurance then it's time to | | | | available only after taxes are paid. To get that |
| re-think debt burdens.The richest person I ever | | | | $1,000 in cash you may have to earn $1,300 or |
| met, someone who started with nothing and | | | | $1,400, depending on your tax bracket and |
| created jobs for more than 50,000 people, once | | | | location. If you pay off your bills and don't have |
| offered this advice: "The key to financial success | | | | to pay that $1,000 a month, Uncle Sam does not |
| is saving, and nothing is harder than saving that | | | | raise your taxes and you gain the equivalent of a |
| first $10,000. After that, it's easy."In other words, | | | | huge raise.When you speak with lenders about |
| it's entirely possible to have a substantial salary | | | | your ability to borrow, consider that with good |
| and to fail the financial sanity test. The waiting | | | | credit you likely can borrow as much as you need |
| rooms in every bankruptcy court are filled with | | | | if not more. But also consider that as a matter of |
| people who once had big incomes and bigger | | | | financial sanity you have a personal obligation to |
| debts. One day the numbers didn't work and | | | | save. If you can buy a home, pay general |
| away went the trophy houses and the big cars.So | | | | expenses and still save 5 or 10 percent of your |
| how do you begin the savings process?The first | | | | gross monthly income, the odds are |
| step, literally, is to open a savings account. The | | | | overwhelming that borrowing will not be an undue |
| very nice people who provide checking accounts | | | | burden now or in the |
| and credit cards will also be happy to hold your | | | | ---------------------Peter G. Miller is a syndicated real |
| savings.The second step is to go after every | | | | estate and personal finance columnist who |
| nickel and dime you can find.The economics of | | | | appears 70 newspapers.Search local mortgage |
| savings resemble gravity: Little pieces brought | | | | lenders now!Go here for online refinancing and |
| together in one place produce big results. Here's | | | | second mortgage loans. |
| an example: Imagine that you usually spend $2.50 | | | | |