If you are struggling to make ends meet nowadays, you certainly are not alone. In fact, according to reporting from CNBC, roughly 77% of Americans indicate they are anxious about their financial situation. While many factors contribute to financial insecurity, having too much debt can be problematic.
Your debt-to-income ratio compares how much revolving debt you have relative to your monthly income. Regularly calculating your debt-to-income ratio is a good way to measure your overall financial health.
How do you do the math?
Fortunately, you do not need an advanced degree in mathematics to calculate your debt-to-income ratio, as the math is simple. First, add up your revolving expenses. These include your mortgage or rent, student loans, auto loans, credit card balances, alimony, child support and anything else you must pay every month.
After adding together your monthly debt, divide by your gross monthly income. This is how much money you make before your employer takes deductions. Then, move the decimal point two places to the right to show your debt-to-income ratio as a percentage.
How much is too much?
Different individuals are comfortable with different amounts of debt. Still, if you have too much debt relative to your income, you may have trouble securing financing for a home, car, education or anything else. The U.S. Consumer Financial Protection Bureau recommends keeping your debt-to-income ratio below 43%. Depending on your financial goals, you may want to have an even lower ratio.
Ultimately, if your debt-to-income ratio is exceedingly high, you may want to better understand your debt-relief options, such as seeking bankruptcy protection.