The right amount to borrow

Housing (Photo credit: james.thompson)

The right amount to borrow

To find out whether you can afford to repay a loan, take the difference between your income and your expenses.  This is your discretionary income. From this amount, you’ll need to first deduct your minimum monthly savings. It’s a good idea to also deduct additional savings to help you meet some of your financial goals. These might include buying a house or a new car or building an emergency fund.

What’s left over defines how much new credit you can afford to take on.  If you’re only just meeting your monthly bills, an unexpected expense could mean a serious financial setback.

If you are already paying off debt, which should be included in your expense summary, you may not be in a position to use additional credit until your existing obligations are repaid.

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