Your Debt To Income Ratio

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To stay out of debt, you must spend less money than you earn. 
Implementing this financial plan is often more difficult than it would
seem. Your debt to income ratio is an important part of your overall
credit history.  If you spend more money than you earn, your debt
to income ratio will be high, making it hard to finance a home or make
major purchases.  There are two basic factors are used in
calculating your debt to income ratio - your net worth and your total
debt.   There are standard guidelines used in the credit
industry to determine if your debt to income ratio is too high. 
The standard may be a bit low due to the fact that many have an
acceptable debt to income ratio but still struggle to pay monthly
expenses.

Your total net worth includes your monthly net pay, overtime and
bonuses, and any other annual income.  Your total debt includes
your mortgage, other loan payments or revolving accounts, car payment,
credit cards, and any child support you pay.  If you divide you
total monthly debt payments by your monthly income, you have your debt
to income ratio.  In the eyes of a creditor, if your debt to
income ratio is lower than 36% you are in good financial shape. 
However, your personal situation, your unique expenses, and your number
of dependants will determine how much debt you can reasonably pay each
month.  If your debt to income ratio is less than 30 percent, you
are in excellent financial condition; 30-36% - you will have no trouble
with lenders, but should work to bring this number down to 30 or less;
36-40% - you will most likely be able to get a loan, but you may have
trouble meeting your monthly obligations; 40 percent or higher - you
will need to evaluate your finances and work towards eliminating debts.

Your credit card debt plays a major role in determining your debt to
income ratio.  The amount you owe on your credit cards has a
direct bearing on your credit score.  If your debt exceeds your
income, your credit score will drop.  Many factors go into
determining your credit score, all of which are indicators of your
overall financial health.  Lowering credit card debt is one of the
best ways to improve your credit score and your debt to income
ratio.  The average American has over $8000 in credit card
debt.  If you are paying the minimum payments each month, this
still takes a big bite out of your income.  Even if your credit
history is excellent, with very few or no late payments, if you have
too much debt, you could be denied a loan. 


Take control of your credit score by lowering your credit card debt or
eliminating it all together.  Your credit score will rise and you
will lower your debt to income ratio.  If you plan to apply for a
loan, purchase a new home, or want to buy a new car, you must make sure
your level of debt does not exceed more than 36% of your income. 
In addition, if you have several credit cards with very low or zero
balances, you would benefit by closing those accounts and transferring
any outstanding balances to a credit card with a low interest
rate.  Some lenders will calculate your debt to income ratio based
on the amount of credit that is available to you.  If you have
several dependants, you may want to lower your debt to income ratio to
around 20% to ensure that you can pay your monthly debt comfortably.

This article is courtesy of CreditorWeb.com, where you can compare business credit card offers and apply for credit cards online.


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Complete Idiots Guide To Getting Out Of Debt

Educate Yourself
This may seem obvious, but a lot of people who find themselves in debt don’t actively seek out information on the issue. Go to the library or bookstore and find books on the subject. Look up budgets, debt, credit scores, and anything that relates to your situation.
Organize Your Bills
You need to know exactly how much debt you have gotten yourself into before you can make a plan on how you are going to fix it. Clearly lay out what your minimum payments are every month and who they are owed to.
Make a Budget and Stick to It
Once you have all of this figured out you can make a budget. Make sure you stick to this budget to keep from getting into further financial trouble.
Get Rid of High Interest
If you discover that you have extra money at the end of the month,pay extra on your debt. Pay off the credit with the highest interest rates first so that you aren’t wasting money on interest. This can save you a lot of money in the long run.
Cut Back on Spending
This won’t be fun, but cutting most of your spending is going to be required. You got yourself into a bad situation, and now you need to redirect your money to get yourself out of it.
Diversify Your Income
Now this may not mean going and getting another “job.” This could be something small and easy such as babysitting on the weekends. It may not seem like much, but even a couple hundred dollars extra a month can take debt out quickly. If you look online and in the newspaper you can probably find a lot of people who just need odd jobs done for a little cash.
By laying out some plans for getting out of debt and sticking to them you will start seeing progress quickly. It won’t be fun, but every time you pay off a credit line, you will be able to breathe easier.