I always find it interesting how people often exclude mortgages and student loans as part of their "debt." I hear people say woohoo I'm done paying off my debt and I think to myself -Really? You've paid off that mortgage you took out a year ago?
For some reason we distinguish worth while debt like a student loan or mortgage as not real debt and only count things like car loans and credit card debt as true debt (although I also know people who don't count car loans as debt either).
The hard truth is that if you owe money to an entity you are in debt. I stumbled upon a helpful article explaining how to calculate your debt to income ratio. It's actually quite easy. Add up all your monthly minimum debt payments and divide that by your monthly income and voila- your debt to income ratio.
Anything over 40% is considered not healthy. Under 30% is excellent and 30-36 is pretty good. DH and I weigh in at 43.6%- ouch!
I think it's our 2 car payments that do us in. We both got "new" cars last year and are not even close to paying them off. I was extremely uncomfortable buying 2 cars so close together but my car was on death's door and once I got a gentle used car, DH "needed" his fancy new truck. I wish that I had started my financial challenge just a few months earlier last year so I could have avoided this "mistake." I'll mark this down as a lesson learned to follow my gut.
The Moment That Ruins Our Focus
12 hours ago
3 comments:
you are correct that debt is debt. However, Dave Ramsey will state that the mortgage isn't as big of a concern because it is an asset.
We don't have a mortgage yet. Our debt-to-income ratio without rent is 4%. With rent, it is 29%.
Here's a good calculator: http://www.usnews.com/usnews/biztech/tools/modebtratio.htm
Bobbin- I'm not too worried about our mortgage, if it were our only debt we'd be at 26%. If we had just student loans and our mortgage we'd be at 30%. It's those darn cars that put us over. lol
Interesting that the US News calculator uses before tax income. That makes a huge difference in our calculations- 43% changes to a much more favorable 36%. I wonder which is more accurate?
yeah, I don't consider before tax income. I think it's silly. :P
Keep chuggin' away at it. You'll get it. :)
Creativity (constantly assessing how you can change your situation) and Aggressiveness are the two factors to success!
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