Saturday, January 25, 2014

Understanding debt ratio : Knowing the debt that can harm you

To apply a new credit, you need to tell the debt to income ratio to the creditor. They will check on how much your debt now. They want to make sure that you will pay off the debt on right time. They want to donate their money to the debtor who are not able to pay the debt.
Some people people whose has so much debt often propose the credit to the bank or mortgage loan. They want to pay the spending for daily necessity. They have no money anymore to buy the bread, oat, meat, milk, egg or fish. For this kind people, the bank will not lend the money.
The debt to income ratio is also an indicator of the financial health. When you have so much debt, you must be not health. You should cure it by paying off the debt soon. Surely, you are forbid to use debt for paying other debt. You should find money to pay your debt.
To calculate the debt to income ratio, you need to list the debt first. Most people have mortgage loan that they should pay it every month. Let say your mortgage loan is $800 per month. Perhaps, your car in garage is a lease car from car lease company. You have to pay $ 600 per month. You also have debt to pay the motorcycle $50 per month. Compute of the debt that sums $1450.
You can check the income that you stream. Most people receive routinely paycheck from the boss. Let say, you got $ 1500 per month from your boss. Beside paycheck, your boss often give bonus to you $ 300 in average. You also have some business. Let say you got $1000 per month. Compute all of your income $1500 paycheck, $300; bonus, and $1000, business; results $2800.
To get the debt ratio to income, you should divide the debt to income. The result is $1450 / $2800 or almost 50%. This ratio is very high. I am pretty sure the people cannot pay off the debt so the financial institution will not give the debt again to him.
The maximum debt to income ratio is 35% which mean over 35% is very bad. To fix the debt to income ratio, you should increase the income. Find sides jobs to add your income. You can also develop your business to stream more income. You can also decrease your debt too.

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