Who’s not pleasure stay with plentiful money all the time? I’m sure you’ll be able to get what you want with no more thinking about the price and how much the cost will you pay. Sadly, most people always forgot how much will they spent their earning monthly without considering their need but always shopping what they want. So, their net worth go down to zero level or minus at the end of month.

Living with debt or credit absolutely is not worse. When you need a car or a mortgage and your cash not enough to pay all your need, what would you do? Wait until your pocket able to pay the cost one time or searching a car/mortgage loan that you able to pay every month. I’m sure you’ll take the second option to get your need. That’s why you need to know how to manage your debt before you’ll get a trouble to get out your debt.

To make your financial health, you should evaluate your debt to income ratio whether is in excellent, good, borderline or red flag zone. This ratio could indicate that your debt is too much or not according to your income.

Calculate your debt to income ratio:

Monthly mortgage payment (including property taxes and insurance) or rent
Monthly home equity line of credit or loan payment
Monthly car payments
Monthly revolving credit payments (furniture, appliance loans, etc.)
Monthly student loan payments
Monthly minimum credit card payments times two
Other monthly loan amounts
Monthly child support payments
TOTAL MONTHLY DEBT PAYMENTS

Monthly net (take-home) pay
Annual bonuses and overtime, divided by 12
Other annual income, divided by 12
TOTAL MONTHLY INCOME

Total Monthly Debt Payments Divided by Total Monthly Income = Debt to Income Ratio

Financial Health Barometer

If your debt to income ratio is: Less than 30%: Excellent!
30% to 36%: Good. You won’t have any problem with lenders, but work to bring it down below 30%.
36% to 40%: Borderline. Some lenders will still give you a loan but you may struggle to make your payments.
40% or higher: Red flag. Your credit situation requires attention.

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