Debt warning signs must be detected early so that you won't trap yourself into serious debt problem. You may already heard about "10 signs of debt trouble" from everywhere like books, articles and brochures. There are however, a few diagnostic tools that used by many counseling agencies that are much more scientific than the "10 signs of debt trouble", because the tools will generated some hard numbers that tell you where you are and how serious your debt problem is. Let review 2 of these common diagnostic tools which you can try them to analyze your debt level.
Debt-to-Income Ratio
One of the number systems that yield some useful information is debt-to-income ratio. The ratio will show how your debt load will looks like and whether you are potentially going to face a debt problem if you don't find solution to handle your high debt load.
This is how to calculate your debt-to-income ratio and find your debt load figure:
First, you must figure up all of your monthly debt payments except for you home repayment; say the amount is $800. Then, you must figure your net income, which is the money you actually bring home every month, say your net income is $2,000. Now you just figure what you are paying out as a percentage of what you are bringing in. In this example divide $800 of debt with $2000 in income put you at 40 percent. What does this number mean?
The number shows that you have 40 percent of debt load. Most counselors agree that debt load exclude the home repayment should not exceed 20 percent and if you count in the home repayment, the number should not exceed 33 percent. If you get 40 percent debt-to-income ratio, you are at an unhealthy debt level which you should get some help now.
Debt Payment Progress Percentage
Another percentage that you can look at is your progress percentage. Progress percentage is a little harder to determine because credit cards payment that allow you to pay the minimum amount each month is actually designed to cut down your progress so that you stay in debt forever, and nowhere on your statement will it tell you just how much progress you are making. However, you can calculate the progress percentage yourself. Below is how you can do to calculate the progress percentage for each of your debt:
Start with your credit cards, because they carry the worst interest. You can calculate the amount of money you pay toward the principal by subtract the current month balance from your previous balance that you find from your credit card statements. Say the amount is $50 and your credit card balance is $5000; divide the $50 with $5000 multiply by 100, you get 1%. This means your progress percentage for this credit card is 1%.
Repeat the same process for every credit card and other debts. This will help you see where you may need to shift money or put more extra cash. For example, you are making 5% progress on the debt with 8% interest rate, but only 1% progress on 18% interest rate debt, you may want to shift money to higher-interest, lower-progress debts. If you keep track of your progress percentage and found you aren't making any progress, you know you are in trouble.
Summary
Debt-to-income ratio and progress percentage are two common tools used by credit counselors to help their client to analyze their debt load and the progress of their debt payment. These are simple tools which you can do-it-yourself to diagnose your debt level and detect the potential debt problem as early as possible.
Source: http://www.ArticlePros.com/author.php?Cornie Herring
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