by Nayab Sh

Created on: October 14, 2010   Last Updated: October 15, 2010

As the name indicates debt to income ratio worksheets are used to calculate debt ratio of any person or company in relation with its total monthly income. By using this financial tool you become aware of total amount you owe and also get an idea about your borrowing capacity at the moment. So if you are interested to use debt ratio worksheet to determine your credit capacity and want to have a look over it then first off visit the following link and then go ahead.                                      

http://financialplan.about.com/library/weekly/DebtTo IncomeWorksheet.htm

So you have taken a look over debt to income ratio worksheet to know how it looks like. Now it’s time to know how to read debt ratio worksheet to use this important financial tool properly. For this purpose you should have its layout before your eyes either by opening the link in another tab of your browser or by taking its hard copy through your printer. Whatever option you consider to keep this debt ratio worksheet in front of your eyes you will see that this debt calculation worksheet has three partitions; one for monthly debt payments, one for monthly total income and one for debt ratio.

Now start reading from its first part of ‘Monthly Debt Payments’ which comprises various text boxes for entering amount of various debts including mortgage, car payments, credit cards, student loans and child support etc.

Now move towards next section of ‘Monthly Income’ which comprises text boxes for monthly net income, bonuses, overtimes and other earnings acquired by other resources. Collect information for these debts and income boxes at one place and put it in respective boxes. Don’t forget to add these amounts and put them in text boxes of ‘Total Monthly Debt Payments’ and ‘Total Monthly Income’.

Now come to third and last section of ‘Debt to Income Ratio’ and use the simple division formula for calculating debt to income ratio.

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

For example if your total monthly debt payments are $2200 and your total monthly income is $5000 then your debt ratio will be:

2200/5000 = 0.44 = 44%

So you are done. In this way you can read debt ratio worksheet to calculate your debt ratio easily. Remember that having a debt ratio up to 35% is considered normal but in case your monthly debt ratio exceeds this level you will be considered moving towards financial disaster in near future. Therefore keep using debt ratio worksheet to get your debt ratio and try to keep it below 35% to avoid debt worries in coming days.                     

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