Can I Afford That Payment?

Cassy J. H. Budd, CPA

Associate Teaching Professor, School of Accountancy

Brigham Young University

Frequently, when someone applies for a loan, the seller or lending institution will "qualify" the buyer for a surprisingly large monthly payment. Before you agree to assume the debt by signing your name, you should be certain that the payment for which you qualify is one that you can actually afford. If the payment is one that will be new to your budget, set up a new bank account and "make the payment" to that account for a period of six months. If the payment will be replacing another amount, like rent or another car payment, continue to pay the original amount and then send the difference between the old and new payment to the bank account for six months.

Six months is a great time frame to use for this exercise because many of the "unexpected" expenditures we tend to forget about will show up during that time period, such as the semiannual car insurance payment, the periodic trip to the dentist, or the occasional need for a visit to the urgent-care office. At the end of six months, if you can comfortably meet the obligation to yourself, you know you can continue to do so with a lender. Not only that, but you will have a nice little stash of cash to increase your down payment on that car or home.

The car may impress some people. But Alex wondered what they would think if they knew how much debt he was dragging around with it.

Eliminating the smallest debts first increases motivation and has a "snowball" effect that is highly successful.

Illustrations by Casey Nelson

 

*

Alex is not a real person, but his character is a composite of individuals with whom I have had personal counseling experience.

Notes

 

1.

Thomas S. Monson, "True to the Faith," Liahona or Ensign, May 2006, 19.

 

2.

Marvin J. Ashton, "One for the Money," Ensign, July 1975, 72.

 

3.

Marvin J. Ashton, "Guide to Family Finance," Liahona, April 2000, 42–47.

 

4.

See Orson Scott Card, "Family Finances," Ensign, June 1978, 15.

 

5.

See L. Tom Perry, "Becoming Self-Reliant," Ensign, Nov. 1991, 66.

 

6.

Articles that reference the teachings of early Church leaders include Joe J. Christensen, New Era, Aug. 1971, 35–36; Max W. Brown, "I Have a Question," Ensign, Dec. 1997, 62; Marvin J. Ashton, "One for the Money," Ensign, July 1975, 72–73; Joseph B. Wirthlin, "Earthly Debts, Heavenly Debts," Liahona or Ensign, May 2004, 40–43; Robert D. Hales, "Becoming Provident Providers Temporally and Spiritually," Liahona or Ensign, May 2009, 7–10.

 

7.

See "Climbing Out of Debt," Ensign, July 2002, 67.

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