How much debt is too much debt?

[humdinger]

I'm setting goals for this year. As of today CC's are at 30% or below, by month end they will be btwn 10 and 20%.

What is a good debt to income ratio to strive for? is the income figured on your gross or your net? What kinds of debt are considered?



thanks
Humm..

[ronn]

I just read that if your total unsecured debt is equal to your annual salary you are BK. so you would want to make about 25-30% of your annual gross salary.

[Ravenous Wolf]

The answer depends on several things. Like, what sort of customer you are right now as opposed to what kind of customer you want to be.

For instance:
Super-prime customer
Prime
Sub-prime
Or if your credit sucks big green donkey [EXPLETIVE DELETED].

However, it is the lender that determines what range you fall into. Banks often use a rating system of A, B, C, and D. Banks that only cater to prime and super prime customers will not even bother with certain high debt ratios. Credit unions are so much more forgiving in that even if you are sub-prime customer, you can still qualify for rates that banks give their prime customers.

Ideally, you would want your debt ratio to be less than ten percent or as close to zero as possible. The higher you go, then you set off triggers that will prevent you from getting prime loans. Higher up and then even sub prime outfits will turn you down.

The only difference is sub-prime credit cards. These predators will give you anything but charge you an arm and a leg.

[LNY]

I never knew donkeys had green [EXPLETIVE DELETED]s. I figured on the big, but not the green.

There's no end to the learnin' on this board.

[jq26]

I never knew donkeys had green [EXPLETIVE DELETED]s. I figured on the big, but not the green.
A quick trip to Tijuana will answer all of your questions about donkeys. <:)

From a credit score standpoint, you'd want to have the lowest possible DTI (debt-to-income) ratio without being at 0, since you need to show responsible USAGE, but you don't want t pay unnecessary interest.

From a budgeting and wealth-building standpoint, you need to break it down further into good debt and bad debt. Bad debt should be minimal- use your cards lightly every month and pay in full or leave just a few $s on the card and then pay when the balance reports. And car payments should be kept minimal if possible (a depreciating asset). But good debt (mortgage) is used to leverage yourself and hedge inflation. I'd say to be prudent, your total DTI should be no more than 35% of your gross salary (most DTI ratios are factored on a pre-tax basis), but that includes the biggest debt of all- your house.

[Ravenous Wolf]

I never knew donkeys had green [EXPLETIVE DELETED]s. I figured on the big, but not the green.
A quick trip to Tijuana will answer all of your questions about donkeys. <:)

:roflmao:

[LNY]

I guess you non-New Yawkas don't know sarcasm when you see it... 8-)

[humdinger]

The debt tracker spreadsheet at this link showed me their are several ways to calculate debt to income ratios. Some consider gross wages and payments, some consider net wages and payments, some use your mortgage....

http://creditboards.com/forums/index.php?showtopic=76753

just scroll down the page.

[tarbaby]

:shock: :lol:


as close to zero as you can get.. :D not over 20% so you have a little leadway for things that come up.. :roll:

[humdinger]

I is the income figured on your gross or your net? What kinds of debt are considered?



thanks
Humm..


So far the answers don't address the question, except for MY OWN answer....sheesh and it is leeway, not leadway.

[jq26]

What is a good debt to income ratio to strive for?
is the income figured on your gross or your net? What kinds of debt are considered?


1) This was answered. Aim for 0%. Since most people don't have unlimited funds, this isn't possible. If it is good debt, like a mortgage, then strive for nothing over 30%. If it revolving debt, then work hard to eliminate it altogether.

2) Gross. Which is why striving to carry no more than 30% dti is important. Because once Uncle Sam gets their cut through income taxes, property taxes, sales tax, etc., you are looking at another 35% of your gross being pissed away. That leaves you with only 35% of your gross left for take home to pay all of your other bills, utilities, any student loans, car insurance, fuel, food, incidentals, etc.

3) An official dti by a broker includes any monthly bill that is reported on a credit report. Add up all of the bills you have showing on any of your credit reports (monthly minumums for credit cards) then divide by your monthly gross. Many brokers use a tri-merge report which pulls from all three CRAs and then merges them so that they see all of your tradelines.

A more important 'unofficial dti' would include all of your bills regardless of whether it reports or not. If it exists, then include it. Obviously, this ratio will be higher, but it is more realistic and is a good personal budgeting tool.

[LNY]

Humdinger, I actually didn't understand your question. I couldn't tell if you were asking what was the ideal DTI in general, or the ideal DTI if you're planning to buy a home. It wasn't clear exactly what you were "striving" for--general financial comfort or a mortgage.

And the criticism of another poster's error in word usage was kind of harsh... :?