Three Reasons Why You Should Monitor Your Debt-to-Income Ratio
- By William F. Gabriel
- Published 08/7/2011
Nevertheless, in dealing with your debt issues, you need to arm yourself with the right set of information so that you will be empowered to arrive at the right decision, especially when it comes to whether or not you should avail of debt consolidation service. In order to determine if you can really keep up with the demands of paying a consolidated loan, you should be able to monitor your debt-to-income ratio.
Debt-to-Income Ratio Explained
The debt-to-income ratio is, simply, a comparison of the amount of your existing debts to your personal income. Apart from a free debt consolidation loan calculator, most lending companies also feature information to help you better calculate your debt-to-income ratio. Specifically, the ratio refers to your monthly payments you have been making for your various debts divided by your take-home pay. For example, if you are earning $1,800 dollars a month and have been allotting $300 a month for debt payments, your debt-to-income ratio is at 16.6%. Under existing standards, this figure is somewhat safe; generally speaking, the lower the ratio, the better the financial condition. Why is this an important piece of information you need to know? Here are three reasons:
Taking Stock of the Situation
Knowing your debt-to-income ratio helps you take stock of your financial situation, helping you decide whether you should avail of debt consolidation service or not. If your calculated ratio is extremely high, say over 20%, then you should be taking concrete steps to rectify the situation. As you make payments and gradually reduce the principal debt amount, you may keep calculating for this ratio so that you can see how much progress you may have achieved and when you can start setting aside some money for other more important expenses.
Opting for Debt Consolidation
If, after determining the ratio, you realized that you are actually heavily indebted, then you may decide on whether or not you should opt for debt consolidation as one way of improving the situation. Knowing your debt-to-income ratio helps you become aware of your financial situation enough to help you assess your financial situation. To help you further decide on whether or not you should get a consolidated loan, you may also a debt consolidation loan calculator to help you determine your possible monthly amortization rate using such key information as loan amount, interest rate, and loan term.
Getting the Best Loan Terms
Finally, your debt-to-income ratio will help determine what kinds of loan terms you will be getting should you decide to go ahead and get a consolidated loan.
William F. Gabriel
William F. Gabriel is a Senior Marketing Manager. Through his articles, he gives practical tips on choosing the right debt consolidation calculator and debt consolidation service.
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