The Debt Burden - How to Relieve It
The Debt Burden - How to Relieve It
The Debt Burden - How to Relieve It
The debt burden - a term that usually means the amount of debt the consumer has. Lenders estimate the ratio of debt to the sum of their client's revenues by comparing income with expenses to identify whether the debt load is feasible. Using the ratio of debt to income ratio can be set, how you made the debts worsen (or improve) your financial situation month by month.
You are able to calculate this ratio (ratio) by yourself. Sum up all your monthly expenses, including utilities and taxes, except for expenditure on rent or mortgage payments. Then compare the monthly amount of expenses with your total annual income (before tax) divided by 12. When you divide the amount of your monthly debt by the average amount of monthly income, you will obtain the desired ratio - the debt to income ratio (excluding payments on a mortgage for an apartment or house).
For example:
The aggregate monthly income before taxes - $ 2,000
Amount of the monthly debt - $ 500 (for example, credit card debt, mortgage payments for a car, etc.)
500: 2000 = 0.25 (25 percent)
Your debt to income ratio is 25 percent.
A general rule of thumb is:
If your debt (excluding payments on the loan for a house or rent) is 10 percent or less of your income, then your "financial health" is in order. If it is from 10 to 20 percent, then you'll probably still be overburdened and should get another loan. But if your debt is from 20 percent, you should definitely steer clear of that loan.
Always be careful. If the lender is ready to give you credit, it does not mean that you should borrow exactly this amount. You should also take into account your fixed and variable costs in order to determine your solvency. Remember, if you have a large debt on your mortgage, you need to compensate for this decrease in your debt to income ratio.
28/36 Rule:
Here's another rule that is used in lending practice - the rule of "28/36." The amount that goes to a monthly payment of debts of your household must not exceed 28 percent of your gross monthly income before taxes. And the amount paid in satisfaction of the mortgage payments and other debt obligations combined should not exceed 36 percent of your gross monthly income before taxes.
The rule varies (by changing the amount of interest) depending on the level of household expenditure and the level of house prices in individual countries.
Counting its own debt load, you also need to take into account the following factors:
* The stability of your income
* Your other regular expenses
* Your need for cash from month to month
* All of your personal needs, desires and goals
* Any unforeseen expenses that may occur (e.g. the costs of care for sick family members or emergency treatment).
* Remember that your debts eat your future income. Because of debt, you have less money today due to previous loans.
* Make saving a regular habit. Remember, it is always cheaper to buy for your own money than a using credit card with interest. Keep the amount of your current and future debt under control and within tolerance.
Alarms
Accumulation of debts can bring a lot of suffering. Here are some examples that indicate that you have gone too far:
* You've received the bills for your debts this month, but have not yet paid the bills for the last month
* The amount to be paid is a lot more than you expected
* You try not to read the mail and not respond to phone calls
* You avoid looking at your bank account
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