How to Analyze Your Current Debt Situation - Honore Credit Consultant
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How to Analyze Your Current Debt Situation

How to Analyze Your Current Debt Situation

You feel like you are in over your head with debt, but until you step back and look at the numbers, you will never know how good or bad your situation is. Then, you will be ready to take the steps you need to improve your current debt situation. Take a deep breath, get out your calculator, and get ready to find out what is going on with your debt. Then, you can put the power back in your own hands.

Analyze Your Debt-to-Income Ratio

Your debt-to-income ratio is a good starting point for looking at your debt. This ratio will give you the percentage of your monthly income that you use to pay your debt. Then, you will know if you are in a good place or if there is room for improvement.

To get this number, take all of your monthly expenses and add them together. Then, divide that number by your gross monthly income. This will give you your debt-to-income ratio.

You want this ratio to be 35 percent or less. If it’s more than 50 percent, you need to take immediate action. When your debt is that high, it can take over your life easily and completely consume you.

Look for Ways to Improve

If you have a poor debt-to-income ratio, you need to look for ways to improve. The quickest way to improve is to pay your debt faster. If you are only making minimum payments on your credit cards, for instance, you will have a hard time improving your debt-to-income ratio. That means you need to increase those payments. Double, triple, or even quadruple your payments so that you can pay down your debt quickly.

Now, something will happen at first when you do this. Your debt-to-income ratio will get worse. That’s because you are putting even more of your income toward your debts. In time, however, you will pay off those debts, and your debt-to-income ratio will greatly improve. Then, it will be in a better range.

Can’t Pay More? Consolidate

What if the idea of paying more toward your debt sounds impossible? If you break into a cold sweat at the very thought, you might need to think about consolidating your debts. This will lower your monthly payments, increasing your debt-to-income ratio and making it much easier to get control of your debt. However, it’s worth noting that it will take you longer to pay off your debt if you consolidate. If you have the money to pay your debt off without consolidating, go that route. However, if you simply do not have the money, this might be the best option.

Check Your Score

Paying off your debt is the first step in improving your current situation. You also need to look at your credit score, however. If you have a bad credit score, it could be part of the reason that you are in such a mess. A poor score means higher interest rates. That makes it harder to pay down the debt. It might not even be your fault that your credit score is bad. You could have false items on your report that are hurting your score. Analyze your reports to find out if your score is bad because of false information, and if it is, have that information removed.

A debt analysis is important. You need to know where you stand with your debt. After you analyze it, take the necessary steps to improve it. As long as you are living in debt, you are never going to know what financial freedom is. Fix your debt problem so you can move forward with your life.

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