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