Too Much Debt?
When the subject of debt enters a conversation, most people become flustered. It isn’t an easy topic for people to talk about, probably because the majority of Americans are swimming in it right now. (Too Much Debt)
But, your fear about debt might be a bit too much, although it is better to err on the side of wanting to avoid all debt, rather than continuing to pile it on.
What this article will help you do is figure out whether or not you have too much debt, or if you have an acceptable amount. The best way to find out this information is by calculating your debt vs. income ratio.
If you go to take out a loan, the loan officer is going to be very interested in this number. You can be the nicest person in the world, but if things aren’t lining up on paper, then there is no way that you’re going to get a loan.
Too Much Debt
This has become especially true as the country falls further into economic problems. I have a friend who was a loan officer for a while and he shared some of the sad stories he’s heard, but the overseeing board always shuts down risky loans, especially now.
You want to calculate your debt vs. income by adding up your monthly payment plans on them. Look at your rent (or mortgage if you own a house), the home equity line of credit on your house (if you have a house), any car payments, insurance premiums, student loan payments (I know all too well how this can scare lenders off), and the minimum credit card payment. If you have child support or any other court-appointed fees to pay back, include those in here too.
Next, you want to start working on your income figures. If you’re working multiple jobs like most people, you will have to be careful when compiling these numbers. You want to make sure that you include your take-home pay. (Too Much Debt)
If you’re salaried or hourly, it doesn’t matter. Write down what you make every month when taxes are taken out. Do this for all your jobs. If you have any other sources of reliable monthly income (that you declare on your taxes) include it here too.
Now that you have all these numbers, what do you do? Take all your debts, add them up and then divide them by the total from your monthly income.
Too Much Debt
This should give you a percentage. If the percentage you see is less than 30%, you’re in good shape. 30-35% is still pretty good. 36-42% you’re going to have to do some explaining.
Anything over 42% and I doubt that the lender is going to agree to give you a loan. Talk to them though and see what you can do to pull yourself into their “acceptable” zone. Sometimes different companies have leeway in their zones, so don’t be afraid to ask. (Too Much Debt)