Calculating Your Debt

Debt Relief

What is debt?

Frequently debt is considered to be credit card balances, but there is much more to consider when calculating your debt. For example, debts for medical bills, auto loans and personal loans should be considered. You should also include the present and future accrued interest on your current balances when considering how much debt you have. If you can sell your home for more than you owe on your mortgage it can be considered an asset; however, the monthly payment needs to be included when calculating your debt to income ratio. Knowing how much your current debt is and how long it will take to pay it off with projected interest can help you decide what actions you might want to take for debt management, retirement and investment planning.

Calculating Debt to Income Ratio

Anyone with loans and credit balances knows that money goes to payments every month, but have you ever added up the total amount of money going to make those payments? Have you compared that with your net income? Calculating debt to income ratio is about determining how much money you make every month and how much of that income is being spent on paying down debts. If your debt to income ratio is low and you are making far more money than you are paying out to monthly debt payments, you may consider making bigger payments to pay off debts sooner, or investing some of the additional money you are making. If it turns out you are paying a high percentage of your income to monthly debt payments, like credit cards, it might be time to consider debt management or bankruptcy. This ratio can also help you determine if you are ready for major purchases, like renovations, a new home or a new vehicle. Here are some examples of the kinds of debt that should be included in your debt to income ratio calculation: