Debt to Income Ratio

andys15

Firstly I know all debt is bad, but as you can see from my sig I am in a lot of debt, more than average on the forums. I also have an higher than average combined income £95000 before tax. What is a good debt to income ratio, mine is less than 50%. Is there a ball park figure like 3 times your income on buying a house.

Hannah_10

I don't think there's a rule because basic living expenses don't diminish pro-rata, so a person who brings home £1,200 a month, but needs £1,150 to live on is going to be paying back a £600 debt for a year. (£600 represents just 8.33% of thier annual income).

If you're on £10,000 a month your essential living needs are still only £1,150 and so that means £106,200 of debt can be cleared a year (that represent's 88.5% of their income) at the same standard of living as the person on £1,200 a month.

So I think that means any percentage measure of debt in relation to income is a false indicator.

andys15

Hannah_10 wrote: »

I don't think there's a rule because basic living expenses don't diminish pro-rata, so a person who brings home £1,200 a month, but needs £1,150 to live on is going to be paying back a £600 debt for a year. (£600 represents just 8.33% of thier annual income).

If you're on £10,000 a month your essential living needs are still only £1,150 and so that means £106,200 of debt can be cleared a year (that represent's 88.5% of their income) at the same standard of living as the person on £1,200 a month.

So I think that means any percentage measure of debt in relation to income is a false indicator.

Very well answered. Thanks

Tixy

Debt to income ratio is certainly something that potential new lenders will look at. As well as total credit to income ratio.
Certainly if you are over 50% credit to income people generally find it harder to get new unsecured credit at the moment.

If you are under 50% I would imagine that it won't affect you in terms of new credit. But in terms of what is affordable to you, well I guess only you know that, and it depends on your lifestyle. Often the case is that people do spend a lot more on living costs etc when they earn more. In your case you are obviously paying back your debt relatively quickly, so using your salary well in relation to your debts.