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| Debt Ratio |
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Debt ratio looks at how much you owe compared with how much you earn.
It usually gives a clear picture of your financial well-being. The lower your debt ratio, the more you have left over to save
or spend on other things.
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Your debt ratio is the percent of your monthly take-home pay that goes to paying debts and monthly obligations.
You can calculate I t like this: Take the amount needed to repay debts each month, including rent or mortgage,
and divide this by your take-home pay (your net pay after deduction of tax).
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Example:
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Monthly debt repayment
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$800
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Monthly take-home pay
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$2,000
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Debt Ratio
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40%
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Many experts recommend that no more that 15-20% of your monthly household take-home pay
(excluding rent or mortgage) should be used to pay debts and make loan payments. Furthermore,
no more than 40% of your monthly take-home pay should go to paying all debts, including mortgage payments.
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