How To Use Debt To Make Money Pdf

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Many debt management experts will tell you that any amount of consumer debt is too much. However, when it comes to the financial services industry and those who evaluate your situation, there is an acceptable amount of debt. The key is to figure out your debt-to-income ratio to get an idea of where you are, and whether your debt level has reached alarming proportions.

What is your debt-to-income ratio?
This ratio is a number, usually expressed as a percentage, that reflects how much of your monthly income goes to make debt payments. This number also includes "good" debt such as mortgage loans and student loans, in addition to "bad" debt such as credit cards, personal loans and auto financing. To figure out your debt-to-income ratio, you need to add up your monthly payment. Then you need to add up everything you make in a year (salary, investment income, bonuses, etc.) and divide that by 12. This represents your monthly income. Next, take your total monthly debt payments and divide that number by your monthly income. The result is your debt-to-income ratio.

Do you have too much debt?
Most financial experts agree that 36 percent is a reasonably good number. In fact, when it comes to getting a mortgage or another loan, this often is the cut-off for the best interest rates. You can use the guidelines below to get a better idea of where you are in terms of debt management:

30 percent and below: Excellent. You will achieve your best results if your debt-to-income ratio is 30 percent or less. It is always better to have as little debt as possible.

30 to 36 percent: Good. You are likely to get the best interest rates on loans, and you can usually comfortably handle your debt load.

36 to 40 percent: Walking the line. You need to be careful. You might be borderline and approaching a debt level that can lead to damage to your credit score or your financial situation.

40 percent and above: Trouble. If your debt-to-income ratio is at 40 percent or above, that is an indication of a problem. Any little problem could send you over the edge and result in financial catastrophe. This is an indication that you definitely have too much debt, and that you should take immediate action to improve your financial situation.

Every situation is different, but it is important to employ debt management practices in such a way as to keep your debt payments at as low a level as possible. You want to make sure that you have a large cushion in case of an emergency.

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