Question
How much is too much debt?
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4th Nov 2009 by Daniel Cross, ChFC
There are two main ratios that are used by financial planners and credit rating agencies to help determine credit scores and maintain a healthy budget. The first is called the debt service ratio and is calculated by dividing the total annual loan payments by gross annual income. 35% or less is the recommended ratio in this category.
The other ratio used is known as the debt burden ratio which is calculated in a similar fashion but excludes mortgage payments to determine a consumer debt basis. This ratio should fall between 10%-20%. There is nothing wrong with having debt as it has it's benefits, but knowing how to use it wisely is the key to a well balanced budget.
There are two main ratios that are used by financial planners and credit rating agencies to help determine credit scores and maintain a healthy budget. The first is called the debt service ratio and is calculated by dividing the total annual loan payments by gross annual income. 35% or less is the recommended ratio in this category.
The other ratio used is known as the debt burden ratio which is calculated in a similar fashion but excludes mortgage payments to determine a consumer debt basis. This ratio should fall between 10%-20%. There is nothing wrong with having debt as it has it's benefits, but knowing how to use it wisely is the key to a well balanced budget.
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30th Oct 2009 In Finance
1 Answers | 103 Views
Subjects: debt,
too much debt,