If a significant portion of your income is being directed toward debt payments—such as student loans, credit cards, and auto loan payments—there’s a good chance you might have too much debt. A good way to get a gauge of your debt is to calculate your debt-to-income ratio. You can do this by adding up your monthly debt payments and dividing them by your monthly income. In general, debt-to-income ratios greater than 36% can start to affect your ability to access loans or credit in the future.
If you are in over your head with debt, the best thing to do is take hold of the situation. While dealing with debt can be overwhelming, putting it on the back burner can have a huge impact on your financial future. A debt settlement attorney is a great resource for understanding your options and developing a solution that works for you. Here are some helpful tips for identifying if your debt is out of control.
Assessing Your Debt-to-Income (DTI) Ratio
Low debt-to-income (DTI) ratios are ideal and will make it easier for you to qualify for loans in the future. This is because a low DTI—usually, around 15%— signals your ability to maintain a healthy balance between what you borrow and what you make. Alternatively, a high DTI can signal to lenders that an individual has a lot of debt and can’t take on any more.
Most banks will not approve loans for individuals with a DTI greater than 43%. In fact, most lenders will not issue loans to individuals with a DTI greater than 36%. While this ratio will vary from lender to lender, having a low DTI will maximize your chances of being approved for preferable loans. Some general guidelines for assessing your DTI include:
- If your DTI is right around 36%, you’re at the limits of what is considered acceptable for loan approval.
- If your DTI is greater than 35% but less than 43%, you may want to look into debt reduction methods like debt snowball and avalanche for handling your debt in a strategic way.
- If your DTI is greater than 43%, you should contact a debt settlement attorney for advice on the best strategy for your situation. Without a strategy for dealing with your debt, DTIs at this level can have a long-term impact on your finances.
It’s important to note that these are general guidelines. There’s no one rule that applies to all scenarios. The best way to take control of your finances and debts is to seek advice from a finance professional who has your best interests at heart.
What Is the Difference Between Good and Bad Debt?
Not all debt is bad. In fact, some debt is actually good. When looking into your personal finances, it’s important to be able to distinguish between your good and bad debts. In general, good debt is characterized by low, fixed interest. Good debt is used to buy something that will grow in value or have a good return. For example, buying a house or investing in a college education can be examples of good debt. Alternatively, loans that have high APRs or variable interest rates can become problematic quickly. Specifically, if these loans are used to buy things that have little to no value—such as funding a vacation—it can lead to balances that consistently increase.
Consult a Skilled Debt Settlement Lawyer at McCarthy Law
If you are struggling with credit card debt, you are not alone. In America, the average person has three credit cards, and 55% of credit card holders have debt. At McCarthy Law, we are dedicated to helping our clients navigate their financial circumstances and reach a favorable debt settlement. We understand the overwhelming burden that debt can have on people’s lives and are committed to helping clients end the cycle of debt. To schedule a consultation with one of our skilled debt attorneys, call our office at (855) 976-5777 or fill out our online contact form.If you are in over your head with debt, the best thing to do is take hold of the situation. Fortunately, the debt settlement lawyers at McCarthy Law can help. Contact us today!