Debt To Income Ratio
Do you know what your debt to income ratio is? Finding out how much debt is eating up your income can really give you a good understanding of why you may or may not find managing your debts and lifestyle easy.
Not only is it good for you to know your debt to income ratio but it is also something that many credit lenders check out too. Lenders like to know how much money you have left over once all your current debts are paid each month. If there is low debt to income then you will be proving to the bank or credit card lender that you have available funds to take on another debt repayment.
Calculating Your Debt To Income Ratio
It isn’t difficult at all to calculate your debt to income ratio. Start with noting down your monthly net pay, which is your income after tax etc has been deducted. Now add up all your debts minimum monthly payments, at this stage you can leave out a mortgage or rent payment. You can calculate those separately yourself just to discover just how much your housing is costing you as a ratio to your income.
So now you have your debt payments total for the month and your monthly net income, you simply divide your debt total into your income total to discover your debt to income ratio.
Acceptable Debt To Income Ratio
There are many schools of thought on what a good debt ratio is but generally speaking if you are sitting under 20% then you are doing pretty good. If it’s above 20% then you might need to take a serious look at your credit card management and other loans you have. Life can become very uncomfortable if you debt to income ratio creeps up and up without you realising it and before you know it your debt payments are eating up a huge percentage of your income and life gets tough.
Reduce Credit Card Spending
Remember your ratio when you’re out shopping and considering that brand new pair of shoes or that new car that you know will push your debts ratio higher, it’s always good to think overnight about any purchase that will be made with more debt. If you keep your debt ratio under control then you will have more money to save up for all those things you want and be able to pay cash for them.
