The key to a debt-free life is not creating new debts and yes, we also mean overdraft in the bank. This situation is called “budget balance” and means that there is more revenue than current expenses. Before taking out a loan, ask yourself if you really need another loan.
You have decided that you really need a loan, before you take it out think about whether you will be able to repay it, or what your “repayment capacity” is. Monthly repayment capacityis the amount of moneyavailableeach month intendedfor repayment of loansand means the difference between the amount of income in an average month and the amount of expenses in an average month
If the income is greater than the expenses, this is a positive balance that can be used to repay a loan.
Conversely, if your expenses exceed your income, you’ll need to create monthly repayment capacity before taking out a loan. If you do not do so, you will not be able to repay the loan you take and every month your total debts will increase and you will have to take out additional loans, which will make it difficult for you to handle the debts later on.
Howdo we check what “refund capacity“ is?
In order to correctly calculate repayment capacity, a careful calculation must be made of all current income and expenses for at least the past six months.
Data can be collected from transaction sheets at the bank and credit card companies, from salary slips and payment vouchers of service providers (electric company, municipality, telephone and means of communication, gas, etc.).
In addition, try to reconstruct, along with the rest of the family, what other undocumented expenses and income you had in the last month or two. The difference between total revenue and total expenses will reflect current repayment capacity. To facilitate the work we suggest using
the Income-Expenses form.
Whatto do ifthe gapbetween the existing repayment capacityand the amount of expected repaymentwhen taking out a loanis large?
It’s simple: you won’t be able to repay the loan you’re considering taking. Taking out a loan in such a situation means snowballing that will grow from month to month and you will soon need another loan because you will not be able to meet the payments. From such a deterioration you will find it difficult to get out.
What if you still need a loan to redeploy debt?
When you have debts and the monthly repayment capacity is lower than the required monthly debt repayment amount, you should act to change the debt system. Such a move is called: debt settlement.
