How to calculate a debt ratio?
Posted on March 27, 2017 by Marion
The debt ratio is the unit of measurement for financial organizations to assess the repayment capacity of a borrower. This is not the only indicator taken into account in a study but it is of great importance, shedding light on the calculation of debt.
Measure your debt
The debt ratio is a simple calculation to carry out and which allows to know the share of debts in the finances of a household. You just have to divide the loan charges against the income and then multiply the result by a hundred. Online tools like this allow you to quickly measure a debt ratio.
Ideally, this rate should not exceed 33%, it is a limit which corresponds to the capacity of a borrower to repay his debts. Beyond that, the risk of over-indebtedness increases, so it becomes difficult to meet your debts, which is financially dangerous.
Several solutions make it possible to re-establish a situation of high indebtedness (family loan, financial aid, consolidation of loans, over-indebtedness file) but the best solution remains prevention.
Advice for your debt ratio
Here are several tips and tricks to keep your debt ratio in the nails, without finding yourself in a situation of over-indebtedness.
1 - the accumulation of credits
The more credits you accumulate, the more you expose yourself to a risk of over-indebtedness because by having a heavier management, we are less attentive and we forget certain credits such as payment cards (revolving credits).
2 - provide a margin
The recommended limit is 33%, but you should not go into debt at 33% because in the event of unforeseen events or a drop in income, the debt ratio can explode. It is therefore necessary to provide for a margin which will make it possible to absorb the accidents of life, to anticipate and to be able to take appropriate measures.
3 - choose the right credits
We are talking more and more about bad debt, that is to say a bad use of credits , each need generally corresponds to an adapted loan. For example, borrowers do not necessarily think about the consolidation of loans to finance their projects and yet it is financing that allows debt readjustment while integrating a new project (car, work, leisure, furniture ...) .
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