Lets say payments on credit was restricted to 30% of your income

[Texashiker]

Lets say that payments on credit was restricted to 30% of your yearly income - and that is for total credit.

When you applied for a credit card, home loan, auto loan,,,,,, the payments on EVERYTHING could not equal more then 30% of your yearly income.

If you had a credit card with a $5,000 limit, when you apply for a home loan, the finance company would have to take into account what your monthly payments would be if the card was maxed out.

This would stop people from getting into too much debt.

Someone makes $75,000 a year, but has 5 credit cards with a $5,000 limit. That is $25,000 worth of possible debt, so no home loan for them.

 

[rcpratt]

Noooo what have I done...

edit: credit utilization = credit debt / credit limit

People have the responsibility to keep themselves out of debt.

 

[Saint Nick]

Wrong thread.

 

[Texashiker]

Noooo what have I done...

edit: credit utilization = credit debt / credit limit

Maximum credit payments = yearly income / 30%

Regardless of what your credit limit is, the payments can not be more then 30% of your income.

People have the responsibility to keep themselves out of debt.

That aint gonna happen. Look at all of the houses that have been repoed and the housing crash.

 

[JTsyo]

Companies already do that. If you go for a loan, they look at your outstanding debts. Instead of denying them the loan they just raise the interest so that it's more likely they'll default.

 

[rivan]

Lets say that payments on credit was restricted to 30% of your yearly income - and that is for total credit.

Then almost noone would own a home, and society would be worse off for it.

 

[KeithTalent]

How about people learn some personal responsibility and not overextend themselves. Maybe they need to start having personal finance classes in school starting in elementary so kids can learn how to manage money. It's really not that hard.

KT

 

[Elbryn]

i dont get it. is there a question here? when you apply for a mortgage, they ask your current payments and use some percentage of your income as the marker to see whether you could afford the mortgage. i think it's 28% or something like that then subtract out existing payments. they already do what you're talking about. debt service % of income. how much of your income goes to service your debt. if it's too high, deny. if it's low enough and you have enough track history (credit score) then you're in..

 

[manlymatt83]

Lets say that payments on credit was restricted to 30% of your yearly income - and that is for total credit.

When you applied for a credit card, home loan, auto loan,,,,,, the payments on EVERYTHING could not equal more then 30% of your yearly income.

If you had a credit card with a $5,000 limit, when you apply for a home loan, the finance company would have to take into account what your monthly payments would be if the card was maxed out.

This would stop people from getting into too much debt.

Someone makes $75,000 a year, but has 5 credit cards with a $5,000 limit. That is $25,000 worth of possible debt, so no home loan for them.

orrrr.... we could stop trying to regulate the hell out of people, let them make their own mistakes, pay for their own mistakes, and stop babying them.

 

[Sinsear]

How about people learn some personal responsibility and not overextend themselves. Maybe they need to start having personal finance classes in school starting in elementary so kids can learn how to manage money. It's really not that hard.

KT

This.

 

[spidey07]

That's a terrible idea. Having credit or lines of credit allow people to grow their business or take advantage of opportunity to make more money. What you're proposing would completely kill our economy, especially small business.

 

[spidey07]

i dont get it. is there a question here? when you apply for a mortgage, they ask your current payments and use some percentage of your income as the marker to see whether you could afford the mortgage. i think it's 28% or something like that then subtract out existing payments. they already do what you're talking about. debt service % of income. how much of your income goes to service your debt. if it's too high, deny. if it's low enough and you have enough track history (credit score) then you're in..

He's saying it should be calculated with all revolving lines of credit maxed out instead of actual obligation/debt. This is terrible, this idea.

 

[Texashiker]

Then almost noone would own a home, and society would be worse off for it.

I disagree.

People would be forced to buy homes they can afford, and society would be better off for it.

 

[Elbryn]

He's saying it should be calculated with all revolving lines of credit maxed out instead of actual obligation/debt. This is terrible, this idea.

noone would ever get a house, a car, or more than a little credit card in that case. not unless you paid cash or had a ridiculously large salary.

the shrink in liquidity would kill close off a big chunk of consumer spending me thinks and throw us into a recession.

 

[Texashiker]

the shrink in liquidity would kill close off a big chunk of consumer spending me thinks and throw us into a recession.

I think your overlooking the point - people would be "forced" to keep their spending within their limits.

No more having people on mediocre wages and $30,000 of credit card debt.

No more home loans taking up 50% of a married couples income.

 

[IceBergSLiM]

How about people learn some personal responsibility and not overextend themselves. Maybe they need to start having personal finance classes in school starting in elementary so kids can learn how to manage money. It's really not that hard.

KT

I remember everything from elementary school. The D.A.R.E. program was especially effective

 

[spidey07]

I think your overlooking the point - people would be "forced" to keep their spending within their limits.

No more having people on mediocre wages and $30,000 of credit card debt.

No more home loans taking up 50% of a married couples income.

I hope you realize our entire economy and livelihood is built on consumer spending. What you're proposing would be devastating to say the least. The consequences are so bad that they're almost unimaginable in terms of damage.

 

[JS80]

What about people who have large amount of accumulated wealth and have $0 income?

 

[paperfist]

How about people learn some personal responsibility and not overextend themselves. Maybe they need to start having personal finance classes in school starting in elementary so kids can learn how to manage money. It's really not that hard.

KT

Amen!

As a business owner credit cards can be a tool or a lifeline when companies default on payments to me. Your plan punishes those that can think outside the bun, instead of specif abusers of credit.

If you're only making $7500 a year and 5 credit card companies have given you credit cards with $2500 limits then me thinks the fault is with the credit card companies.

 

[ElFenix]

Then almost noone would own a home, and society would be worse off for it.

almost no one in germany owns their own home and yet society there isn't crumbling

 

[gophins72]

Yeah, I have to agree with the traditional capitalist view on this. I am however for the hopeful education of the populace so it doesn't get itself into bad debt situations.

 

[xanis]

I remember everything from elementary school. The D.A.R.E. program was especially effective

There's merit to what KT said. Incorporated into math classes, it could be an effective way to teach kids financial responsibility early on in life.

 

[mnewsham]

What about people who have large amount of accumulated wealth and have $0 income?

In the OP's scenario one would assume they would calculate you assets in with your total "worth" yearly salary + property + accumulated wealth = your "worth"

I however think this idea is retarded.

 

[mnewsham]

There's merit to what KT said. Incorporated into math classes, it could be an effective way to teach kids financial responsibility early on in life.

It would need to be a continuing thing, like grade 3,4, and 5 then 8th then again 11th and 12th. Like health class is (in this state) you take it 5th then again 6th, 7th and 8th then once more in high school. You learn the same basic things each time (going a bit more in depth as you get older).

 

[Scarpozzi]

Are you talking net or gross?

I've been paying more than 30% of my net income for about 7 years. It's not easy, but I've really made a dent in my mortgage and built a lot of equity.

I feel as though I've certainly come out better than if I had rented and given all that money to someone else. Had my ability to borrow been capped as a result of that, I certainly wouldn't be living in the house I'm in..and it's not excessive in the least.

I've got friends that bought some expensive houses out of college. I have no sympathy for them and the interest they'll be paying over the years.