Are you interested in learning about what the 20/10 rule of thumb is? Well look no further because we have all the answers you are looking for! As for those of you who landed on this page without the intention of researching this topic, stay for a little while and do some spontaneous research anyways. You never know when you or a friend may end up needing this information in the future so why not go get a head start now for 2022.
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What is the 20/10 Rule?
To begin, the 20/10 rule is a conservative rule of thumb for other consumer credit , not counting a house payment. What does this mean exactly? This means that total household debt (not including house payments) shouldn’t exceed 20% of your net household income. (Your net income is how much you actually “bring home” after taxes in your paycheck.) Ideally, monthly payments shouldn’t exceed 10% of the NET amount you bring home.
For example, if you bring home $60,000 per year, your total consumer debt shouldn’t exceed $12,000 and total monthly payments shouldn’t exceed $500 per month.
What's The Purpose For The 20/10 Rule?
The main purpose that this rule holds is to help you create a guided structure on how much debt you should actually be carrying. Not only that but this rule also helps you visually see how much you are spending and where you're spending it, which then allows you to clearly set your financial goals for however long you choose to use this rule.
There are instances where this rule may not work for everyone right away. It all depends on how far into debt you are in and if that debt has reflected negatively onto your credit score. It is important that when planning to use the 20/10 rule, you speak with a professional that can help you with any questions regarding how you can pay off your debt as well as repair your credit to get better rates when trying to pay off the debt itself.
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