This debt to income ratio calculator will help you see where you stand financially so you know whether or not you would qualify for a loan or mortgage.
Your debt to income ratio is a valuable number because it shows how much of your income is dedicated to monthly financial obligations, or recurring debt.
This figure will include such things as mortgage (plus taxes and insurance), car loans, minimum credit card payments, and any other loan or financial commitment to a bank or lending institution. However, calculation of the debt to income ratio will not include such things as groceries, gasoline, entertainment, or utilities.
Lenders will consider this number when determining your credit worthiness and in deciding if they will approve your loan applications.
The lower the number, the greater likelihood there will be of you getting the credit that you desire.
Generally, lenders prefer that your income to debt ratio be no higher than 40%. Anything over this figure could mean that you will have to pay a higher interest rate, or possibly be denied credit.
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According to Federal Reserve statistics, most American families spend 20% or less of their income on debt repayment, which is a healthy figure and definitely improves borrowing power.
However, about one in six families (16.67%) has a debt to income ratio greater than 40%. If you fall into this category, it may be time to take some action and begin the steps necessary to regain control of your finances.
This free debt to income ratio calculator will automatically calculate your debt to income ratio. Simply enter your household income and all your monthly debt obligations, then click the compute button for your figures.
The instructions and the explanation of the results were very straight forward and easy to understand, and then apply.
The debt to income ratio calculator is something that every consumer, including myself, should use at least once a year, or whenever something significant changes in my financial word. It gives a very clean picture of where I stand, and I appreciate that information.
If your resulting number is 40% or lower, you are in an acceptable range and know how to spend your money responsibly in comparison to your income.
A figure of 41% – 45% is not too bad, but you should start making some debt reductions before it becomes unmanageable. Borrowers in this range may have more difficulty getting a personal loan or mortgage, but usually have little problem acquiring additional credit cards. Beware of taking on further credit card debt, as this can really hurt your already struggling finances.
A debt to income ratio of 46%-52% is considered high and financial difficulties are probably likely unless you take immediate action toward lowering your monthly obligations.
If your ratio is greater than 53%, you should seek professional help to make a plan for significantly reducing your debt before you are facing serious problems such as foreclosure or bankruptcy.
Calculating your own debt to income ratio is helpful in showing you the health of your finances, and it can be very valuable if you are seeking credit. Knowing your number before you apply for a mortgage or loan will allow you to see how much you can borrow as well as the likelihood of your application being approved.
Once you complete this free debt ratio calculator, learn more about the debt ratio and how it relates to your budget to help you get back on track quickly.
Learn More About:
The Financial Community’s Recommended Budgeting Guidelines
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