As we are still on the precipice of a downgrade relying on one ratings agency – Moody’s to keep us from falling into ‘Junk’ status we should be we’ll aware of the possible outcomes of losing our investment status. This situation is in the hands of our leaders and we have very little we can do about it. We certainly waited far too late to remedy things to avoid our credit status.
Don’t make the same mistake with your personal finances which we can control. You should be well ahead in your ability to service your debt even in the face of a sharp rise in interest.
Essentially, ratings agencies assess countries ability to service and repay their loans. This provides investors and lenders with assessments of the associated risks in dealing with that country. Your personal money lenders do the same thing. They stringently assess your ability to afford your debt using key factors which provide a credit rating.
Start with your personal credit rating which you can get for free from various online credit bureaus.
Update your personal balance sheet and quantify your debts taking a hard look at your exposure to debt.
How easy can your income cover the cost of the debt, is the important question? Talking into account a sharp rise in interest rates.
Work on having more disposable income by living well under your means. Buying a home or car which you can comfortably afford leaves more money behind each month. It is here where you will find the money to build up your savings and cash reserves.
Reducing your dependency on debt and increasing your savings will improve your credit rating and avoid a personal downgrade.