It stipulates that your housing payments shouldn't exceed 28 percent of your gross monthly income, while your total debt service – including your house payments, utilities, credit cards and other loans – shouldn't be more than 36 percent.
To figure out your back-end debt ratio, multiply your monthly gross income by your total monthly debt payments. If your income is $4,000, the math looks like this: $4,000 x 0.36 = $1,440. According to the 28/36 rule, your total monthly debt should be no more than $1,440.
Each household should spend no more than 36% of their income on debt overall. This includes housing, car loans, credit cards, etc. For example, if you take home $4,000 a month, you should not be spending over $1,120 on housing expenses and $320 total on other debts each month.
According to data on 78.2 million Credit Karma members, members of Generation X (ages 43 to 58) carry the highest average total debt — $61,036.
As a general rule, low, medium, and high debt-to-income ratios look something like this: Low DTI: 3.0 or below, considered excellent. Medium DTI: 4.0 – 6.0, considered good, but not excellent. High DTI: 7 – 9.0 or higher, considered risky.
Now that we've defined debt-to-income ratio, let's figure out what yours means. Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high. The biggest piece of your DTI ratio pie is bound to be your monthly mortgage payment.
What happens if my debt-to-income ratio is too high? Borrowers with a higher DTI will have difficulty getting approved for a home loan. Lenders want to know that you can afford your monthly mortgage payments, and having too much debt can be a sign that you might miss a payment or default on the loan.
A good goal is to be debt-free by retirement age, either 65 or earlier if you want. If you have other goals, such as taking a sabbatical or starting a business, you should make sure that your debt isn't going to hold you back.
If you have old credit card debt that is still within the statute of limitations, it's a good idea to try to pay it off if you're able.
Average household debt grew by 7.3 per cent to $261,492 in 2021-22, according to the latest figures from the Australian Bureau of Statistics (ABS).
Tasmania will reach 25% while WA will have the lowest at 15% of GSP. borrowing level with $123B in FY2022 (i.e. 2021-22), followed by New South Wales with $106B.
The latest lending indicators from the Australian Bureau of Statistics (ABS) show that the average mortgage size (for owner-occupier dwellings) was $585k in May 2022.
Household Income and Wealth, Australia
Average net worth for all Australian households in 2019–20 was $1.04 million. Total average liabilities for households saw a statistically significant increase from $189,500 in 2017–18 to $203,800 in 2019–20. Three in four (75%) households had debt in 2019–20.
What Is the 28/36 Rule? The 28/36 rule refers to a common-sense approach used to calculate the amount of debt an individual or household should assume. A household should spend a maximum of 28% of its gross monthly income on total housing expenses according to this rule, and no more than 36% on total debt service.
The 20/10 rule of thumb is a budgeting technique that can be an effective way to keep your debt under control. It says your total debt shouldn't equal more than 20% of your annual income, and that your monthly debt payments shouldn't be more than 10% of your monthly income.
It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”
Use this 11-word phrase to stop debt collectors: “Please cease and desist all calls and contact with me immediately.” You can use this phrase over the phone, in an email or letter, or both.
A credit reporting company generally can report most negative information for seven years. Information about a lawsuit or a judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. Bankruptcies can stay on your report for up to ten years.
Cons of Early Debt Payoff
No turning back: Once you make a payment, you usually can't get the money back. If, for example, you lose your job soon after paying off significant debt, you cannot undo that decision and may need to apply for a personal loan to cover your monthly expenses.
The Average Debt for Those 55-64
Between the ages of 55 and 64, many Americans start to think about retirement. But among heads of household who have debt and are in this age bracket, average debt levels stand at $145,740. They might have assets in excess of this debt, but they might have negative net worth.
Becoming debt free means that you'll be saving more towards retirement. Maintain a monthly budget like you did when you were paying off your debt, but now, instead of sending off those monthly payments to a credit card company or mortgage lender, you're going to put it into savings.
Those between the ages of 40 and 49 hold an average of about $7,600 in credit card debt — the highest of any age bracket, per TransUnion data provided to CNBC Make It.
35% or less is generally viewed as favorable, and your debt is manageable. You likely have money remaining after paying monthly bills. 36% to 49% means your DTI ratio is adequate, but you have room for improvement.
To make the most immediate impact, try to pay off one or more debts completely. For example, reducing a credit card balance to zero will completely eliminate one monthly payment – creating an immediate improvement in your debt-to-income ratio.