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Do You Have A Healthy Debt Load?

Thinking of purchasing a big-ticket item soon? Maybe a new car, that fancy refrigerator you’ve had your eye on, or a home? Well, even if you’ve paid your bills on time and think you can swing the payments, you should also consider your debt-to-income ratio.

Debt-to-income Ratio

This ratio is calculated by comparing your income to the total amount of debt you have. The exercise can be revealing, especially when you calculate this ratio regularly. However, waiting for a lender to do it can generate less-than-appealing results—if your debt-to-income ratio is too high, you will likely get a higher interest rate and you could even be turned down for the loan.

The ratio appears as a percentage—the percentage that the debt is to the income. A 30% ratio means you use 30% of your total gross monthly income (before taxes) to pay your monthly debts. The lower the ratio, the better your ability to qualify for loans.

Calculating Your Ratio

There are many calculators available on the Internet to help you calculate your debt-to-income ratio. To get a quick sense of your debt load, you simply divide your total monthly minimum debt payments (not including mortgage or rent payments) by your monthly gross income.

  • Your monthly payments include: car payments, installment loans on furniture or appliances, bank or student loans, minimum credit card payments and medical care payments.
  • Your income includes: your paycheck, any alimony or child support payments, bonuses, commissions and tips.

An Acceptable Ratio

These guidelines differ depending on the lender with which you’re dealing. In general:

  • 35% or less: This is an average debt load for most people. If you keep your ratio around 15%, you’re in great shape.
  • 36%-42%: You need to control your credit spending and work on a plan to start retiring some of your debt.
  • 43%-49%: You could soon face financial difficulties unless you start lowering your debt now.
  • 50% or more: You may need to seek professional help to aggressively reduce your debt load. The National Foundation for Credit Counseling offers free assistance to people who need to get a handle on their finances.

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With over 8 years experience in the debt industry working with companies offering debt settlement, negotiation, management and consolidation, we have learned the best options for our customer's situations and are able to make educated recommendations which companies may best fulfill the customer's immediate and long term needs.

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Unsecured debt is an overwhelming problem for many people these days. Our debt management program has become extremely popular, because it allows individuals to consolidate these debts into one manageable payment. This is a very attractive program to the many customers who will realize a substantial reduction in both the amount of interest they pay and their monthly payments.

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