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Keep a close eye on your debt-to-income ratio

On Behalf of | Oct 7, 2020 | Firm News

If you have too much debt relative to your income, you may have trouble securing a mortgage, auto loan or any other type of financing. In fact, the U.S. Consumer Financial Protection Bureau notes that any debt-to-income ratio above 43% is likely to be problematic.

Seeking bankruptcy protection is often an effective way to put financial affairs in order. Your bankruptcy filing may also start you on the path toward financial freedom. Consequently, if you have a high debt-to-income ratio, you may want to explore your bankruptcy options.

How do you find your debt-to-income ratio?

To calculate your debt-to-income ratio, you must first add up all your monthly bills. These include mortgage or rent, automobile loans, utilities, groceries, credit card payments and any other expenses you regularly pay.

After you determine how much monthly debt you have, you need to know your gross monthly income. This information likely appears on the paystubs you receive from your employer. Then, simply divide your debt by your gross monthly income. The quotient you receive is your debt-to-income ratio, which you should think of as a percentage.

What debt-to-income ratio is too high?

How much debt is too much relative to your income likely depends on your credit score, spending habits, financial goals and other factors. Nevertheless, if you have a debt-to-income ratio above 43%, bankruptcy may be the right option.

Whether through bankruptcy or some other means, improving your debt-to-income ratio is typically a good idea. After all, if you have too much debt relative to your income, you may experience the sort of financial anxiety that tends to jeopardize a person’s quality of life.