investing guide

Debt To Income Ratio

debt to income ratio

So what is your debt to income ratio?

Achieving financial goals in life become very difficult if you can not get a handle on your bad debt. Bad debt refers to things such as credit card debt and car loans. Items that simply bring no real value to you over time.

Good debt would be items such as a house or education. These items are actually worth the debt in most cases because you will ultimately get something in return.

Time to calculate your bad debt ratio:

Bad Debt / Annual Income = Bad Debt Ratio

As an example:

If you have $20,000 dollars worth of bad debt and your annual income is $40,000 a year; then your bad debt ratio would be 50%.

Anything above 25% is a sign that your debt may be out of control.