Understand Debt-To-Income Ratio
A debt-to-income ratio indicates a person’s total monthly loan repayments against his gross monthly income. A high ratio indicates that a person may not have enough cash for his monthly needs.
As a general rule, your total monthly repayment on all your loans and credit card debt should not be more than 40% of your gross monthly income.
Let us see the example below to understand further on Debt-To-Income Ratio.
Debt to Income Ratio = Monthly fixed loan repayment / Gross monthly income x 100%
Existing monthly loan repayment,
- Housing loan = 1000
- Car loan = 600
- Personal loan = 200
- Credit Card = 5% x total outstanding balance. Katakan total OB skang 5000 = 250 (5% x 5000)
Gaji = 4000
Debt to Income Ratio = (1000 + 600 + 200 + 250) / 4000 = 51.25%
From the example above, the debt-to-income ratio is higher than the recommended amount of 40%.