How to Determine Debt Level

To calculate your debt level you need all of the information concerning your payments to creditors. When you know what your debt level is you can establish some financial guidelines. If your percent is too high you may want to consider paying down some of your debt to get things under control. A debt level that is too high is a signal you may need to instill some form of discipline designed to control your spending. Having a budget in place helps you manage your finances better.

Instructions

1

To determine your debt level, add together all of your monthly consumer loan payments to creditors with the exception of your mortgage payment. Divide your monthly consumer payments by your monthly take-home pay to get your debt level. The figure you come up with should not be more than 15 to 20 percent of your take-home pay for one month. For example, if your total amount of consumer monthly payments is $650 and your take-home monthly pay is $1800 ($650/$1,800) your debt level is 36 percent, which also gives you a 36 percent debt-to-income ratio. This puts you well above the 15 to 20 percent recommended figure.

2

Add your mortgage payment, including property taxes, insurance premiums and your private mortgage insurance payments to the previous consumer payment figure and recalculate using your gross, not take-home monthly pay. This will provide you with a picture of your debt level. If your debt level is more than 36 percent of your monthly gross income you should consider eliminating some of your debt. A debt ratio of 40 percent is the cutoff point for lenders when you want to refinance your home. To continue the above example, when you add a mortgage payment of $500 and use a monthly gross of $2400 ($650 + $500/$2,400), your debt-to-income ratio goes up to 47 percent.

3

Type all of your information in an online debt level calculator such as the one in the References section of this article if you'd rather not do the math yourself. Start with your take home pay, then input in your gross pay. Enter your monthly consumer loan payments. The next section allows you to key in payments related to housing expenditures. Click the "Next" button and your debt level will be calculated.

4

Pay down credit card and other consumer debt. Another way of combating a high debt level is to have a balance transfer completed by your credit card company. When you can consolidate a number of credit cards with high rates of interest into a single lower rate you can lower your monthly credit card payments.

5

Refinance your mortgage balance if you are above the recommended debt level of 36 percent counting the mortgage. This will give you a lower monthly payment, assuming you receive a lower interest rate and you don't shorten the term of the loan.