Your Credit Card and Your Budget

If you understand your budget, paying off the credit card will be easier

By Gary Foreman


Approximately one in three of us have at least one credit card with a balance due. Minimum payments have gone up, too, in recent years in accordance iwth the law. While in the long run this helps everyone pay off their balances more quickly than before, it also means more of us wrestle to keep up with payments.


Your Budget

Most family budgets are dominated by three categories: housing, automobiles, and food. Combined these typically take 65 to 70 percent of the budget. That leaves 30 to 35 percent for everything else: insurance, clothing, medical, dental, entertainment and vacations, education, property taxes, savings, and debt repayment.


Even if a category in the second group requires only 3, 4, or 5 percent of your income, totaled together, these expenses quickly consume the remaining portion of your budget. Each family is a little different but most families find they can commit about 5 percent of their paycheck to repaying debt without twisting their budget out of shape. If you can dedicate more, you should.


Out-of-Control Credit Cards

Your credit card balance is unlikely to stay at its current level but instead will rise. The reason is simple. Life happens.


There will always be “unexpected” home and auto repair bills. Even with good medical insurance the deductible on a broken arm can be significant. And taking a nice vacation is always tempting.


Think carefully about how you use your credit card. Set aside money so that you can at least meet the minimum payments every month -- and try to pay  more. Never forget that a credit card is a lot easier to use than it is to pay off.

Gary Foreman is a former financial planner who currently edits The Dollar website.