How to Calculate a Debt Settlement

While debt settlement is one of the best ways of getting out of debt, pros and cons are attached to it. Creditors only agree to the calculation of a debt settlement when they are certain that the debtor will not be able to pay off the entire loan amount and they want to get back at least part of the money owed to them. Calculation of a debt settlement and payoff is more favorable to the debtor because he pays less than the total amount owed.

Instructions

1

Calculate the debt-to-income ratio, which will give you the percentage of your income that goes toward payment of interest on existing debts.

2

Add together your total monthly debt, which comprises house rent plus credit card payments plus car loan payment (if applicable) plus all other payments made on outstanding expenses.

3

Divide this figure by your total monthly income. Your annual income divided by 12 months will give you this figure.

4

Take the above amount and multiply by 100. That is the percentage of debt-to-income ratio.