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This is a guest post from Debt Lead, who has a debt consolidation website by Kimberly Credit Counseling.

What is your debt to income ratio? If the percentage is greater than 36%, your credit score will be negatively affected because you are considered to have too much debt. This means credit card companies and banks will likely turn down your application. Each lender sets its own policy and while some might accept you, many others will only approve your loan if you have a ratio below 30%. The general rule of thumb is to keep your debt to income ratio below 36% if you ever want to get financing.

To calculate your score, you need to add up your monthly fixed expenses. These expenses include all debt such as: house payment or leases, credit card other revolving credit balances, car payments, alimony, child support, etc. Do not include grocery, telephone, and utility bills or any debt that will be paid off in the next few months. If your car loan will be paid off two or three months from now, don’t include it in the equation.

Here is a sample calculation:
Gross monthly household income: $5,000
Fixed expenses: $1,600
Debt-to-income ratio calculation:
$1600/$5000 = 32%

The above shows that this person’s debt to income ratio is 32%. I would advice him to start paying down his debt rather than accumulating more. Unfortunately, he can probably still get approved for another credit card provided he has a good record of paying his bills on time so it’s important to be careful and not keep accumulating debt!

What is your debt to income ratio? Do a quick calculation and see!

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