Whether it’s an auto loan, a student loan, a mortgage, or even unmanageable balances on credit cards, store cards or personal loans, a large percentage of people owe some amount of debt. When these debt amounts add up and you are not able to make your payments, that’s when problems occur. As an educational non-profit company, CESI provides free money management tips on how to handle your credit and debt responsibilities, including how to get out of debt.
Like most life skills, money management techniques are something that need to be taught. Learning money management tips will not only help you get out of debt, but will also help you make wise financial decisions for yourself and your family in the future.
One of the first money management techniques we teach is to live within your means. To do this, it helps to calculate your debt-to-income ratio.
Your debt-to-income ratio is equal to your monthly debt payments divided by your monthly income.
First, determine how much you spend each month on debt. This includes all of your expenses:
Mortgage, house payment or rent
Alimony or child support payments
Minimum credit card payments
Payments on any other loans
All of these expenses together make up your monthly debt payment. Next calculate your monthly income. To do this, add your annual gross income, bonuses or overtime, alimony or child support, and any other income. Divide this amount by twelve to get your monthly income.
Now, for your debt-to-income ratio, divide your monthly debt payments by your monthly income. Then, multiply the result by 100 to come up with the percentage. A ratio lower than 30% is excellent, a value above 40% means that you have too much debt.
If you find you have an extremely high debt-to-income ratio, you could benefit from our course in money management tips and skills and/or our debt consolidation services. Our personal financial education plan includes a wide range of free resources, both online and in print, that will help you develop your money management techniques, eliminate credit card debt and acquire the knowledge and skills to make wise financial choices.