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Calculate Your Debt to Income Ratio

Calculate Your Debt to Income Ratio

by | Consumer Proposal, Credit Counseling, Credit Repair, Debt Management

Debt is the money borrowed with the intention of repaying with interest. When you can’t pay your debt, you can be sure to be in trouble in many cases. Debt management is, therefore, very necessary. Basic finance handling strategies can help you take better care of your money and expenses for a lifetime.

If you have accumulated debt over time, you will need debt counseling to free yourself from the financial trouble you are in. Following are some of the things to look out for that suggest that you have an accumulated debt:

  1. You have little to no monthly savings.
  2. You pay for food and gas and other basic necessities using a credit card because you are left with very little money after paying your bill.
  3. You pay for a credit card using the cash advance you get from another.
  4. You get a lot of calls from lenders.
  5. You fear that you won’t be able to make the minimum required monthly payments on your debt.

What is a Debt to Income Ratio?

Debt to Income (DTI) Ratio is a number calculated by dividing your monthly payments on the debt by your monthly income. You can assess your debt situation by calculating the debt to income ratio. When you are looking to get more debt, debt to income ratio is basically what lenders will use to assess your ability to repay the money that you are borrowing and manage repayments every month.

How Can You Calculate Your Debt To Income Ratio?

The calculation of the debt to income ratio is pretty simple and can be completed in three steps.

Step 1: Calculate the total minimum monthly payments on your debts

While figuring out the total amount you need to pay each month on your debts, take account of all your recurring debts, such as:

  • Mortgage or rent
  • Home equity loan payments
  • Auto loans
  • Student loans
  • Furniture loans
  • Minimum payments on credit cards
  • Child support payments or alimony
  • Any other debt

Exclude your basic expenses like gas, food, and utilities from the list.

Step 2: Calculate the total monthly income of your household

At this step, you simply have to add up all the money you receive each month. The money may include:

  • Gross income (excluding taxes and deductions)
  • Alimony
  • Child support
  • Bonuses or overtime
  • Other income

 

Step 3: Finally, calculate your DTI ratio

Debt to income ratio can finally be calculated by dividing the total amount of monthly payments on your debts with your gross monthly household income and expressing it as a percentage.

For example, if the total monthly debt payments are $1800 and the monthly income is $3900, your DTI ratio will be 1800 divided by 3900, which is 0.46 or 46%.

How much is a healthy DTI ratio?

A debt to income ratio of 36% or less is considered healthy, meaning you can easily settle your monthly debts. However, you should avoid acquiring more debt.

If that number exceeds 43%, you should consider yourself in trouble. And you must seek professional help if your debt to income ratio is more than 50%. Legal financial advisors can help you come out of that financial crisis.

How much debt is too much in GTA ?

How much debt is too much in GTA ?

by | Uncategorized

Whether it is a credit card balance, a student loan, an auto loan, or a mortgage, most of us have some sort of debt. As long as you’re trying to pay it off, your debt should not concern you too much. On the other hand, if you’ve allowed debt to accumulate so much so that it’s having an effect on your health then you may need to mend your ways and quick. You’re here for a reason and that reason is finding out whether you have too much debt. How can do that? Let’s take a look.

Determining your debt-to-income ratio is one of the easiest ways to find out whether you have too much debt. The percentage of your monthly income that goes towards debt payment is referred to as your debt-to-income ratio. According to many financial experts, the average household debt in the United States is $10,000. Your debt is likely is likely to be somewhere around that figure. Following are some signs that you have too much debt.

All your money goes towards debt payment

As mentioned earlier, determining your debt-to-income ratio is a good way to find out whether you have too much debt. Basically, if most of your monthly income is going towards debt payment then there’s a good chance that you have too much debt. In an ideal situation, you should not spend more than 35% of your monthly income on debt payments. However, if you spend more than half of your monthly income on payment of debts then you, my friend, have too much debt.

You’re living a paycheck-to-paycheck lifestyle

If you’re living a paycheck-to-paycheck lifestyle then a major reason for it could be too much debt. Generally, people who have too much debt aren’t able to save any money. The reason for this simple: most of their monthly income is spent on debt payment and the remaining goes towards utilities/groceries. So, if you’re always without money at the end of each month, there’s a good chance that you have too much debt.

Your debt is causing you health problems

If your debt starts to cause health problems in you, it’s a good sign that you have too much debt. Too much debt can cause you to miss debt payments. When you’re behind on payments, creditors are likely to call you for collection. Thinking about getting a collection call from creditors can keep you awake at night and cause anxiety/stress in you. This is turn will cause health problems in you.

 You’re denied new credit

Your credit rating significantly depends on how much debt you owe. A poor credit rating indicates that you have too much debt.

 

As seen above, too much credit can damage your credit rating. If you have too much debt then get in touch with a credit counselor to reduce your debt and improve your credit rating.