Assess Financial Standing Through Debt-to-Income Ratio

Since November 2007, credit card debt has reached its highest ever. According to recent statistics from the Federal Reserve, an increasing number of consumers rely on credit cards for purchases since revolving debt increased by $8 billion, which in turn increased the overall credit card debt to $870 billion.

The trouble with credit card debt is that it can instantly become unmanageable. An increase in credit debt means a corresponding increase in monthly payments and the amount of debt accumulates even further.

If you observe that your credit card bills are increasing, start keeping tabs on your debts and finances. One tool that can help you is your debt-to-income ratio, which gives an accurate measure of your financial status and shows the relationship between your debt and your income.

To compute for your debt-to-income ratio, just divide your total monthly debt by your total monthly income and multiply it by 100. Next, the following ratios provide an assessment of your financial status.

If your ratio is lower than 36 percent, then you have a good financial standing and must maintain at this level by building your savings and making investments.

If your ratio is between 37 percent and 42 percent, then you have an acceptable financial standing but must still strive to cut down your debt. Try paying above the minimum amount required on your credit card bills so that it will decrease your debt more rapidly.

If your ratio is between 43 percent and 49 percent, then you are in the verge of financial trouble and must take corrective actions to immediately manage your finances. Consider balance transfers or debt consolidation loans to remove your outstanding debt.

If your ratio is 50 percent or above, then you have a financial problem so you must ask for assistance. Consider a financial planner or seek help from a credit counseling agency to discuss your options.

Share and Enjoy:
  • Print
  • Digg
  • Sphinn
  • Facebook
  • Mixx
  • Google Bookmarks
  • Blogplay

Related posts on loans for people with bad credit:

  1. Not All Debt is Bad – Some Debt can Help Improve Your Financial Condition Not All Debt is Bad – Some Debt can Help Improve Your Financial Condition All types of debt can be seen in a mortgage business. Debt payments for car loans, student loans and IRS payments, alimony, child support are made when…...
  2. How to Assess a Good or Bad Debt How to Assess a Good or Bad Debt In the past few years, the different types of financing solutions have been common to a lot of Americans already. However, many are still asking whether or not there is indeed good debt or…...
  3. AEA Progresses But Have Problems with Bad Debt AEA Progresses But Have Problems with Bad Debt Based on the call report of the credit union during the first quarter of this year, there are a few flickers of progress for AEA. The call report was put online this week in…...
  4. How Debt Consolidation Affects You Credit Rating How Debt Consolidation Affects You Credit Rating Are you currently thinking of a debt consolidation loan or a consolidation plan? Ever wondered if consolidating debts has effects on your credit rating? Listed here are the three factors why consolidating debts affects credit…...
  5. Increasing Student Loan Debt Increasing Student Loan Debt Most recently, a report showed that there is an increase in terms of the debt load of both college students and college graduates. Specifically, the report according to the Federal Reserve Bank of New York states that balances…...

Filed under: debtDebt Consolidationdebt managementLoans

Like this post? Subscribe to my RSS feed and get loads more!