Posts Tagged ‘federal budget’

Raise Your Debt Limit

18 May 2011

Suppose your household has a debt problem. Your income suffered a dramatic decline recently. It is slowly improving, but you know you’ll need to make some big changes at some point. Right now you still aren’t making ends meet. On the other hand, your credit rating is excellent. Here are several alternatives you are considering:

  1. Seek a raise from your employer.
  2. Get a second job.
  3. Sell your car.
  4. Sell your boat.
  5. Borrow more money.
  6. Default on your mortgage.

What should you do under these circumstances? What should you not do?

There is no one clearly correct answer. The best answer for you depends on how you value things. Nevertheless, defaulting on the mortgage is surely going to come out worse for you than anything else. Also, although many people’s intuition and common sense will tell them that borrowing more money is the last thing that they should do, it might be part of the best plan.

Consider the premises I set out. Your income situation is improving. Your credit rating is excellent. If the future is bright, borrowing on a rainy day is not wrong.

Selling your car might be a big mistake; it will be hard to get around without it. You can ask your employer for more money, but they might not give you much more. A second job will hurt your quality of life.

Sell the boat? Yeah, probably. I put that in there as the seeming luxury you can do without. What if the boat is a canoe and it doesn’t put much of a dent in what you owe? It still might be wise to sell it, but that won’t be a complete solution.

My solution? Have faith in yourself. Don’t be afraid to borrow more to get through the next year or so. Hang on to the car—you need it. Whatever you do, don’t default on your mortgage. That’s a headache you don’t need.