I am glad to have done this exercise because it gave me a good idea of my financial habits and especially my personal financial leverage. I have learnt lessons by watching others that having credit cards may encourage consumption because one can delay paying for the items he/she purchases and credit cards often come with limits that easily exceed one’s monthly income. That is why I decided to avoid credit cards for as long as possible and this exercise shows avoiding credit cards has paid off when it comes to my personal financial health.
My monthly income is $2,600 which means I can maintain maximum attractiveness to creditors for as long as my debt-to-income ratio remains below 10 percent of my income or $260. My actual debt turned out to be only $140 which means my debt-to-income ratio is only 5 percent and way below the 10 percent mark. As I closely looked at the potential sources of debt, I realized it is easy to fall in high debt-to-income category unless one properly plans. There are a various forms of debt I have avoided which many other students accumulate such as student loans, car payments, and computer and electronic payments. I have been able to avoid student loans by having a job and similarly, I have avoided owning a car because public transportation system meets my needs and in addition, owning a car often results in unexpected costs such as expensive repairs.
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A student can still remain in good credit by maintaining less than 20 percent of debt-to-income ratio but my goal is to not exceed 15 percent and given my current lifestyle and spending habits, I am hopeful I will be able to achieve my goal until I graduate.
