by Nayab Sh

Created on: October 12, 2010   Last Updated: October 13, 2010

Debt ratio worksheets are popular financial tools that facilitate you in assessing your current debt level, and your ability to take more credit to add convenience to your life. Therefore all of us should use this handy tool at least once a month to evaluate our economical status. Debt ratio worksheets make us aware about the essential facts regarding our financial state which we usually ignore in the hassles of busy life.

If you start using it regularly for your debt assessment then you will see how much awareness you gained about your financial habits and how much conscious you have become in your financial dealings through this easy to use financial tool. But the question is how to use debt ratio worksheets? Here you can find simple step by step process to use debt ratio worksheet and can apply it easily to calculate your debt to income ratio.    

(See ‘debt to income ratio worksheet’ at http://financialplan.about.com/library/weekly/DebtTo IncomeWorksheet.htm) 

First of all gather information regarding your monthly debt payments at one place. It can include your mortgage, car payments, student loan, child support and credit card bills etc. After collecting these pieces of information at one place, just have a look over debt ratio sheet to see which information has left to keep in hand. Put the information in related text boxes in first part of debt ratio worksheet and add the total in ‘total monthly debt payments’ box. 

Secondly, it’s time to get exact information about your monthly income you earn in the form of salary, bonuses, overtime, investment profits etc. Don’t forget to divide annual income by 12 before adding into debt ratio worksheet because you are going to calculate your debt level on monthly basis. Put the information in respective text boxes and add its total in ‘total monthly debt payment’ box.

Thirdly, you have to do another simple calculation in which you have to divide total monthly debt payments by total monthly income to get the actual debt to income ratio.

Example to Calculate Debt to Income Ratio through Debt Ratio Worksheet:

Formula: Debt to Income Ratio = Total Monthly Debt Payments/ Total Monthly Income

Total Monthly Debt Payments: $1500

Total Monthly Income: $4000

Debt to Income Ratio: 0.375 OR 37%  

So that’s it. You have done it successfully.

Now the question is, what you have to do with this simple calculation and where does you stand with 37% debt to income ratio; in secure financial zone or outside it. The answer is that if your debt ratio is up to 35% then you are in secure zone but if it exceeds this level it could be an alarming sign for your financial future. So make honest assessment of your finances by using this simple financial tool and have an exact idea about your financial standing.    

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