For example, let’s assume you make $3,000 a month. Let’s also assume you spend $300 on credit card payments and $450 on an auto loan. Your ratio calculation would be $750 / $3,000 = 0.25. Multiply that by 100 for a debt-income-ratio of 25%. In this example, you spend a quarter of your income on bad debt When it comes to debt, whether good or bad, the lower the debt you have, the better. A bad debt ratio beyond 10% is too high and often is a sign that you are overloaded with debt. In this scenario, you would have too much bad debt.
Example In our example, Sam's debt to income ratio is 38.5%. This isn't a bad ratio, but it could become worse if Sam increases his monthly debt payments without increasing his income.
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