Have you calculated how big a problem you might be having with debt? The thing about debt is that it’s easy to be in denial. Sure, you know you have a problem. Those credit card statements just keep coming in and piling up. You may even be receiving phone calls from your credit card providers or from debt collectors. But you keep telling yourself that you don’t have a really serious problem, that it’s just a temporary thing and it will eventually get better.
Don’t bet on it
The unfortunate fact about debt is that it can easily get out of control but it’s much more difficult to get it back under control. In fact, if you let it go long enough your only option might be to file for a chapter 7 bankruptcy, which would put a terrible stain on your credit record that would last for 10 years.
Your debt to earnings earnings ratio
One way to determine how serious a problem you have with debt is to sit down and calculate your debt to earnings ratio. This is a very simple calculation. Just add up all of your earnings – your salary and any other income you have from a second job or some other source – and add up all of your recurring debts, which are those that you must pay every month. This would typically include your mortgage payment or rent, any car loans, student loans, personal loans and credit card payments.
Next, divide your total recurring debt by your total earnings. This will yield a percentage, which will be your debt to earnings ratio. For example, if your recurring monthly debt is $1200 and you earn $2000 a month, your debt to earnings ratio would be 60%.
How much is too much?
A debt to earnings ratio of 43% to 49% means you’ll soon be running into serious financial problems if you don’t take immediate action. And if yours is 50% or more, you need to immediately find some way to aggressively reduce your debts.
Consumer credit counseling
If your debt to earnings ratio is 50% or higher, a good option would be to find a consumer credit counseling agency in your area. If you can’t find one, you can go online where you’ll find a number of these services. In either of these cases, you will be assigned a counselor who will review all of your assets and debts and your budget and help you create a debt management plan. Your counselor will contact all of your creditors to negotiate lower interest rates and for them to accept your debt management plan. If they all sign off on your plan, you will no longer have to pay them. Instead, the credit counseling service will pay your creditors and you will send it one check a month until you complete your plan, which typically takes about five years – depending on how seriously you are in debt.
The pros and cons of credit counseling
The biggest benefit of credit counseling is that it will get rid of all your creditors in the sense that you will no longer have to deal with them. Plus, you will have a monthly payment that will be less than the total of the monthly payments you are currently making. The negatives of consumer credit counseling are that first, you will have to give up all of your credit cards. Second, you will have to be very careful to not take on any new revolving debt until you complete your debt management plan, which as noted above will probably take you at least five years. And while credit counseling will not leave as bad a blot on your credit report as if you had filed for bankruptcy, it will be noted that you did not pay your debts “as agreed upon”.
These negatives are why many people decide to forgo credit counseling and opt, instead, for debt consolidation. Our debt consolidation providers are so certain they could help you become debt free in a reasonable amount of time that they actually offer a simple 100% satisfaction guarantee.
So, if your debt to earnings ratio is 50% or above, don’t delay. Call our toll-free number today and let us explains how we could help you.
