Question

What do you think is an acceptable percentage of a person's potential income should be allocated to all debt reduction including a person's home, credit cards, auto loans, and school bills? Explain your answer.

Answer 1

The personal budget has several components:

1. Income per month

2. Utility costs

3. Meal costs

4. Rental costs

5. Debt repayment

And these are the essentials of the personal budget not including "discretionary payments" such as entertainment costs and other expenses that are in nature non essential.

So to determine the allocated budget for debt reduction it depends on income levels for a person, as well at their essential spends.

However on an average scenario it might look as follows:

1. Meal costs - 20 %

2. Rent - 20%

3. Utility bills - 5%

4. Other essential - 10%

5. Debt reduction - 25-30%

6. Available for discretionary/ savings - 25-30%

This is based on an average income person, with moderate spending needs, and no dependants.