| Learn about Your Debt to Income Ratio - First Steps of Debt Reduction |
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| Written by Lisa Max |
| Friday, 01 January 2010 15:53 |
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One of the many reason why so many Americans file for bankruptcy is because of high debt. This country overall has one of the highest debt to income ratios.
One of the many reason why so many Americans file for bankruptcy is because of high debt. This country overall has one of the highest debt to income ratios. Before you can get a loan approved, your debt to income ratio must be calculated. If you DTI is too high, you are a risky borrower and may possibly have issues paying your creditors back. Getting a loan approved involves having the lender calculate your debt to income ratio to show how much risk you are as a consumer. If you DTI is higher than the norm, this shows the company that you are high risk and may run into the problem of not being able to pay the creditors back in time. Next, you will have to calculate all your debt; this includes the payments you make monthly on all outstanding balances. Do not include your utility bills, just your credit cards, car payment, mortgage, child support, personal loans, and any business loans. If you know that any of these balances will be paid off within 3 months, do not include it. Lastly, divide your monthly expenses by the monthly income and you will calculate your debt to income ratio. Example: Debt is the next part of the equation. Debt does not include your utility bills but it will encompass outstanding balances on credit cards, loans, mortgage, child support, car payments, etc. If a debt will be paid off within three months, then do not include it. Lastly, take the monthly expenses and divide it by the income and you will be coming up with your DTI. This DTI is ideal in terms of the ability of paying monthly expenses with the amount of income that is received. Another Example: Fixed Monthly Expenses = 2800 DTI = 62% This is way to high for a finance company to consider loaning out any money. If you do receive credit or financing it is at a very high cost. Taking a look at where you stand in reference to your debt an income is the first step in being able to do any type of debt reduction method. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn more about Smart Debt Repair. Stop by Lisa Max's site where you can find out all about debt consolidation scams and various debt repair tips. |