Today I need to walk you through, understanding Debt to income ratio, so you see how significant the debt load you are carrying is. I will likewise show you the best way to calculate it and these are the basic indicators that the credit providers lenders additionally take a look at before they grant a loan (advance).

“With great power, comes great responsibility and the reverse is also true, with great responsibility comes great power –  when we take responsibility by taking action, we have the great power to make it better and most importantly is controlling how we feel – curiosity, excitement” – Jim Kwik

Overseeing and controlling your debt obligation displays the most money-related responsibility that you have towards yourself, your friends and family, and both your current and future financial planning. It is constantly a smart thought to make sense of how a lot of obligation/load you have and compare with the amount you earn. Another way to look at is to see that the (bacon) income you bring home is utilized to satisfy your basic needs and obligation. This activity will help increase an understanding of your monetary standing (financial wellbeing check).

Give us a chance to work out a debt-to-income ratio(debt load) which means how much debt is spent, by the salary earned. The debt burden is the absolute entirety of all the monies owed by you, to your creditors whether determined month-to-month, total sum owing so you have an unmistakable sight or perspective on where you stand.

Let us use Jimmy as a random example to work out the debt burden to present the point. Let us state his all-out month-to-month debt load is equivalent to R11 500.00 and his monthly home pay(earnings) after-tax, is equivalent to R15 000.00. Therefore his ratio of all his debt burden isolated by net earnings is, equivalent to (R11,500/R15,000 X 100 = 77%).

It implies that the greater part of his monthly earnings goes to pay his debt obligation, and the question is how does he live on, and that is the reason it displays living on credit (personal advances, credit cards, car payments, overdraft, microloans ) to endure until the following month, and the next coming months, until he can’t endure it any longer, which from the beginning leads to denial, point of blame, stress, at that point frustration or disappointment sets in that it leads to self-destructive thoughts and helplessness.

If the proportion is between 10-30%, your debt obligation to pay proportion(ratio) is acceptable yet satisfactory and it is endurable(bearable) and you are still capable of dealing with your income(money) and paying off your debt.

You should have noticed by now that when the ratio is above 40% -50% and above, it is a serious warning red flag and needs quick and immediate intervention or else you are in a high-risk zone (financial ruin) will be announced on you soon by your creditors and you could wind up in genuine financial trouble where perhaps we can call you bankrupt if you don’t take immediate action to address the circumstance. It will be compared to running or driving a vehicle on an unfilled tank with no oil in the engine and hoping for a miracle to reach your destination.

In the event that we take a look at Jimmy’s example above, it will in all probability bring about credit providers and lenders walking out on you and be less likely to lend you a hand when you need it the most (open and extend any credit/advance to Jimmy) or in all likelihood, he will open himself up to being either sent summons court appearance or charged exorbitant(high) loan cost (value) if he somehow managed to approach the microlenders, as a last resort.

It is basic to pause for a minute before we engage in taking up credit and furthermore genuinely consider the repercussions of the way of life we are trading off, the friends and family, and our future potential riches creating activities. Consider it along these lines, investigate Jimmy’s model over a portion of his pay that goes to support debt obligation and it is no big surprise that it attracts unnecessary pressure points (stress), blame, and guilt. It is absolutely unnecessary and there is an exit plan. If interested in further reading, I recommend my post on Getting Out of Debt Permanently.

Thank you for taking the time to read this post, you are welcome to leave a comment, or question or share your story and we will get back to you. Thank you once again for gracing us with your presence.