Learn To Calculate Your Debt To Income Ratio

Online, May 11, 2011 (Newswire.com) - If you're working on your personal finances, you can find out how you're doing financially if you break things down into your income and debt levels. If you have more income coming in than debt payments going out, how can you tell if that's good enough?

This is where the debt to income ratio can come in handy. This calculation can help you understand where you are financially and can be helpful as you strive to make big financial decisions.

But remember: financial ratios don't give you a detailed portrait of your particular financial situation. It is intended to instead be a snapshot. In other words, it's a quick look at a moment in time - for your personal finances.

Calculating your debt to income ratio is as simple as adding up all of your debt and subtracting it from your income. To get started, gather up your bills, including your mortgage payment, car payment, credit card payment, student loans (if applicable), child support or childcare, and any other monthly obligations. Add everything up and this represents your total monthly debt payments.

Next, calculate your monthly income, including any dividends or other extra money you have coming in on a regular basis.

Take your total debt payment number and divide it by your monthly income. This is your debt to income ratio.

Why does this matter? Keeping your debt to income ratio as low as possible is the goal, so obviously it helps to know what that number is. It's also important because lenders look at this number when determining whether to lend you money and what the terms of that loan would be.

When planning for your personal finances, it's best to be aware of what you've got now, as well as what you'll have in the future. You can start this planning by calculating your debt to income ratio - and be better prepared, whatever the situation.