debt to income ratio

worriedDan

So I just calculated my debt to income ration using a calculator that I found online. Mine came out at 38%. I used the calculation whereby you divide your monthly debt payments ( inc mortgage) by your net monthly income.

I thought back to when we first purchased our house, 14 years ago. Our household income ( net) was £2050. Our debt to income ratio at this point was 41%, so relatively worse than we are now!

I don't suppose it really means anything but it is interesting to think that whilst we owe loads of money now, we are relatively actually no worse off than we were when we had much less debt and a much lower income. I shall seek solace in this fact. We have literally fallen into the trap of earn more, borrow more, earn more, borrow more. More fool us.

itchyfeet123

I think using the amount you pay to the debt in a given month for any kind of calculation is meaningless. If you pay more than the minimum payment you're going to look worse, even though paying more than the minimum is obviously a good idea in most cases.

A more meaningful metric might be total debt relative to income, projected amount you will pay to clear the debt relative to income, monthly or projected total interest payments relative to income, how many hours of work you need to do pay off the debt...

But, from other threads, you already have a plan in place to deal with your debt. Spending a lot of time crunching numbers, trying to compare how "bad" you are now compared to the past or compared to someone else on these boards, doesn't sound like a great use of your time or mental energy.

moneyfacts

If that fact excites you, then imagine how brilliant the feeling will be when you're debt free! With your decent income, you have the potential to be very comfortable financially.

So get there as soon as possible. Challenge yourself to spend as little as possible in March. Bet you could make plenty of meals with what's in the kitchen.

Google free entertainment ideas. Bake with the kids and go for a picnic.

Reject a few night out offers this month. Buy no new clothes, DVDs, equipment or even toiletries till you need them.

Embrace being super frugal, most people are.

Instead of posting about justifying your debts, post things you have done to save money and impress us.

worriedDan

moneyfacts wrote: »

If that fact excites you, then imagine how brilliant the feeling will be when you're debt free! With your decent income, you have the potential to be very comfortable financially.

So get there as soon as possible. Challenge yourself to spend as little as possible in March. Bet you could make plenty of meals with what's in the kitchen.

Google free entertainment ideas. Bake with the kids and go for a picnic.

Reject a few night out offers this month. Buy no new clothes, DVDs, equipment or even toiletries till you need them.

Embrace being super frugal, most people are.

Instead of posting about justifying your debts, post things you have done to save money and impress us.

You're right moneyfacts - I seem to go through a daily cycle with me feeling motivated and excited in the morning and then feeling low by the evening. This is when I start obsessing over the numbers.

redpete

worriedDan wrote: »

I don't suppose it really means anything but it is interesting to think that whilst we owe loads of money now, we are relatively actually no worse off than we were when we had much less debt and a much lower income. I shall seek solace in this fact. We have literally fallen into the trap of earn more, borrow more, earn more, borrow more. More fool us.

Don't fool yourself that you are 'relatively no worse off' by using that measure. If you pay a very small amount off your debt each month the ratio of repayments to income will look good but you are paying more interest over a longer time so the reality may be that you are considerably worse off.

enthusiasticsaver

It is a bit of a meaningless calculation and actually as the debt has increased over the 14 years since you first took out the mortgage that would make me more despondent even if your income has also increased.

I sense the magnitude of this is depressing you and you are probably still in the berating stage but this will be a long haul and the only figures which you should be focusing on is the total debt and how quickly you are managing to repay it. I would also keep track of overall interest paid and look for opportunities to constantly reduce that by using 0% credit cards. Don't fall into the trap of thinking that because you are managing to service the debt due to high income it is ok to live with that indefinitely. None of us know what is around the corner and something like a job loss can be a game changer if you have significant debt.

You have made a good start in starting to clear the debt but accepting you have made mistakes and moving on to remedy them is the best way to move forward rather than thinking it is all ok to carry on as normal and relax the debt reduction plan.

worriedDan

enthusiasticsaver wrote: »

It is a bit of a meaningless calculation and actually as the debt has increased over the 14 years since you first took out the mortgage that would make me more despondent even if your income has also increased.

I sense the magnitude of this is depressing you and you are probably still in the berating stage but this will be a long haul and the only figures which you should be focusing on is the total debt and how quickly you are managing to repay it. I would also keep track of overall interest paid and look for opportunities to constantly reduce that by using 0% credit cards. Don't fall into the trap of thinking that because you are managing to service the debt due to high income it is ok to live with that indefinitely. None of us know what is around the corner and something like a job loss can be a game changer if you have significant debt.

You have made a good start in starting to clear the debt but accepting you have made mistakes and moving on to remedy them is the best way to move forward rather than thinking it is all ok to carry on as normal and relax the debt reduction plan.

Hi

There is no way that I am relaxing in my debt free missions! In fact, I am even more desperate to clear it. I keep waiting to feel better about it all but at the moment I am still really struggling to accept the mess I have created. Hopefully these feelings will reduce as the months progress and the balance falls

moneyfacts

Dan, are you going to make big changes on how you spend money now? The trick is to make a budget and stick to it.

in fact why don't you do just that. Instead of worrying now, plan where your money will go after your next pay. Set a limit for everything including groceries and entertainment. Don't ever just have a pot of money in your current account for the monthly spends anymore. That always leads to overspending.

It's your attitude towards money that needs to change.

lazer-zxr

Any measure that is motivating you, and rewarding to see improve through debt reduction is valuable. Use the ration. Get it down!

Personally, it's cheered me up, I'm down from 49% to 32%.

Money_Rollercoaster

I'm pretty sure that if you think back 14 years, your debts didn't make you sleepless in the same way as they have in 2017 and I think that says much more than any online calculator will.


I like to do the DT test. It has two parts ...


1. If I think about my debts, do they make me shaky?
2. If I Die Tomorrow, would it leave my wife and kids in the stink?


If you answer yes to either of those, you have a debt problem.


Just keep the faith and plug away at it, it takes a while for your new payment and budgeting regime to gain momentum and reduce the overall balance, but believe me, if you keep on the straight and narrow, you'll get there and the relief when you do clear individual debts will be tremendous.