How Much Debt Do You Really Have?

There are very few people living in the United States today that do not have some sort of debt. Most people have a mortgage payment, at least one car payment, and sometimes a student loan payment as well. Being in debt is so common that it has gotten to the point where it seems almost as if owing money to someone is the patriotic thing to do!

Debt should not always be considered as a bad thing, or as something to avoid, especially if you are having no trouble making the payments. Debt is a necessity at times, for very few people are able to go and plop down cash at an automobile dealership to pay for a car in full. Still fewer people are able to pay cash for a home, even a very small one! Then there are the credit card bills. Most people use their credit cards for a big purchase when they don’t have the available funds, so they can conveniently pay for the item a little at a time.

The problems start when your debt becomes excessive and leads you into a precarious financial situation. Do you know how much debt you really have? There is a simple way to figure out whether or not you are carrying too much of a debt load, and it is by figuring out your debt-to-income ratio. Everyone should do these calculations in order to see where they stand and to determine if they need to work on their overall financial picture.

Add up how much money you spend in a month’s time. You should include your mortgage or rent payment, car payment, credit card payments, student loan payments, utilities such as gas and electric, child support, alimony, any other bills you may have, and any other expenses such as for groceries, gasoline, eating out, etc. Take this figure and divide it by the total amount of money you have coming in during a typical month. Include your salary, any bonuses or stock dividends, any child support or alimony payments – everything. Now multiply the answer by 100, which will give you a percentage figure which is your debt to income ratio – your overall financial picture in black and white.

Here’s how to read your numbers. Financial experts say that 36% or lower is best. Anything over 40% means you are headed for trouble. If you don’t like the way your numbers turned out, you can take steps to reduce your debt. Draw up a household budget, pay more than the minimum on your credit card balances, and perhaps even consider a part time job until things look a bit better.

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