Does debt to income ratio matter?

jonnybeegood · 7 October 2016 at 12:18PM

Is there a point where unsecured debt to ratio reaches such a point that the debt become unmanageable?

Our current unsecured debt to ratio is currently around 62% if we use our gross salaries but if we use take home pay its more like 95%!!!!!!!

EssexHebridean · 7 October 2016 at 1:01PM

I *think* that's not quite the right way of looking at it. (Apologies if I'm missing the point). For example - a mortgage is a debt, but will always - at least at first - far exceed your gross annual income for pretty much everyone. It depends on the amount of the debt, the term, and the amount you have to repay.

MrsTinks · 7 October 2016 at 1:17PM

I think it's the wrong way to look at it... It's about affordability and outgoings. Your level of debt might be crippling for you, but for someone who has no rent etc (living at home?) and hammering their debt for a year or two could be no "big deal" relatively speaking, so no I think it's the wrong way of looking at it.

If you include my car in my debts then I'd have been over 100% my annual income in debt a few years ago as I was in a different job. BUT my husband pays the mortgage and most of the bills so relatively it wasn't quite as big a deal as if I'd also had other bills if that makes sense?

It's about what you can afford, sustain and manage.

jonnybeegood · 7 October 2016 at 11:01PM

Thanks for the replies. I can see your points. Its not like I am planning to pay it all back in a year. I think that realistically we are looking at around 40 months.

Sanctioned_Parts_List · 7 October 2016 at 11:18PM

Always with the interesting questions, jonny! :beer:

The debt to income ratio doesn't matter - it's the income to necessary expenditure ratio that defines when debt repayments will start to bite...

Does debt to income ratio matter?

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