In our case your monthly income is $3,700.
Let's also say you spend $300 on credit card payments and $450 on a loan. Your ratio calculation would be
$750 / $3,700 = 0.2.
Then multiply by 100 for a debt-income-ratio of 20%.
In this case, you spend a 20% of your income on consumer debt. Consider it this way: for every $1 you earn, you're spending 20 cents on debt, leaving you with 75 cents for savings, non-debt expenses, and other financial goals, which is very much ok
How to calculate Debt Overload
It is very possible to earn enough and still have an unhealthy financial life before of one may not be able to manage debt like mortgage, auto loan, student loan, and credit card too, but you are indebted hence one way or the other you have made a commitment to always service your debts.
Now to cushion the effect of these debts, you must be able to calculate rather than guessing, you can calculate your level of indebtedness relative to your income. One of the easiest ways to calculate your debt load is by figuring out your debt-to-income ratio.
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