Don't know if you are carrying excessive debt? Here are a few ways to find out for sure
Not all debt is created equal and not when it comes to paying it off. Excessive debt is a subjective terms depending on your financial situation.
Here are some ratios that might help you determine if you are carrying excessive debt:
a. Total debt ratio (Total liabilities / Total Assets) – Should try to keep it under 40%
b. Emergency funds – About six months is ideal
c. Debt-to-income ratio (Annual consumer credit payments / Annual after-tax income) – Should try to keep it under 15%
d. PITI ratio (Annual mortgage Principal, Mortgage Interest, Property Taxes, and Property Insurance / Annual gross income) – Should try to keep it under 28%
As with all financial advice, you should consider above strategies a useful checklist to get educated; however, consider how these might fit your personal situation before taking action. A discussion with your financial planner might also be useful here.
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