Debt Calculations
Debt management is an crucial part of personal financial planning, as it can be a useful way to increase the purchasing power and build a credit history, which will help us in financing in the future. On the other hand, too much debt can create a substantial financial burden that can be difficult to overcome.
Two major components of tracking how we are doing financially can be broken down into our income and debt levels. Financial ratios don't give us a terribly detailed picture of our financial situation, but they can be employed to quickly gauge how we are doing. In addition to the debt to income ratio, some other easy ratio to compute is net worth. With net worth we are essentially adding up all of our assets and measuring them against all of our liabilities. A positive number means we have more assets than financial obligation while a negative number means we have more financial obligation than assets. This number can help us in tracking our financial progress from year to year.
Computing our debt to income ratio is as simple as adding up all of our debt and subtracting it from our income. Some calculations may exclude things like mortgage payments and property taxes, but to really get a complete picture it's best to include everything.
Thus, to get commenced, take a moment to collect all of monthly debt obligations. This will comprise monthly payments such as:
Mortgage payment letting in insurance, private mortgage insurance, taxes etc.
Car payment
Student loans payment
Minimum credit card payment
Child support
Any other monthly debt obligations
By adding these all up it will render us total monthly debt payments.
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