Months without interest are one of the main advantages offered by a credit card, however, rarely teach us the key aspects that we must consider to use this means of payment.
An essential aspect that you must take into account when using a credit card is your ability to borrow, that is, the amount of money you can spend month after month without affecting your finances.
Experts in personal finance state that the limit of your debts must be between 30% and 40% of your total income.
There is a precise mathematical formula to calculate your debt capacity, know how much your payments should be for months without interest, and thus keep your budget safe.
How to calculate the capacity of indebtedness?
The capacity of indebtedness is relatively easy to estimate, since it is the result of subtracting from our total income, the fixed and variable expenses.
- Total income: includes your salary, investment income, additional work payments, your car rental as Uber or renting a room on Airbnb, or any other additional income.
- Fixed expenses : are the ones you have every month without fail such as food, gas, transportation, internet, Netflix, rent, the payment of debts that you already have on your credit card or if you have an auto or mortgage loan, among others.
- Variable expenses: are those presented bimonthly, semi-annually or annually as several services of your home (water, electricity, property, if you have your own home), clothing, insurance, among others.
Your expenses will depend if you are single, married or if you have children. So make a detailed list of all the expenses that you can incur during the payment of your credits or loans.
Formula to calculate the capacity of indebtedness
The mathematical formula to calculate the monthly debt capacity is the following:
Debt capacity = (Total income – Fixed and variable expenses) x 0.35.
- Debt capacity = ($ 15,000 – $ 11,000) x 0.35.
- Indebtedness capacity = $ 4,000 x 0.35.
- Debt capacity = $ 1,400.
In this example, a person may have monthly fees through their credit card of up to one thousand 400 dollars.
If you apply this formula to know your debt capacity, you can acquire an intelligent debt and you will not risk your finances.
In addition, after subtracting your income, your expenses and the payment of debts, this formula leaves you a percentage that you can allocate to your savings goals. In this case, it would be 2 thousand 600 dollars ($ 4,000- $ 1,400) that you can start investing in instruments that generate profits.
Also, we recommend that you try to find more sources of income to increase your debt capacity, so you can access better interest rates and better credits.
Finally, to know how much you can spend on your next purchases, it is very important that you have a budget of expenses based on your income, and you give constant monitoring. You can take your record in Excel or a mobile app that can help you register and categorize your expenses automatically. So, you will see when you have exceeded your budget and you will find savings opportunities.