Debt-to-Income Ratio: Who cares? You Should and Here’s Why

by Andrew Schreiber 21. January 2015

Debt-to-Income

What is your debt-to-income ratio? Don't know? Don’t care? Do you plan on buying a car and getting a loan to do so? Do you plan on buying a house? If the answer is yes, you should definitely care what your debt-to-income ratio is.

Why is your debt-to-income ratio an important factor when looking to borrow money?

Before a lender approves you for a loan, they calculate your debt-to-income ratio. This gives the lender an idea of your ability to pay your monthly debts and take on a new loan. Lenders prefer to see lower debt-to-income ratios because it shows that you have a good balance between debt and income. If your debt-to-income ratio is too high, you may not be approved for the loan amount that you applied for. Generally speaking, a good goal is to keep your debt-to-income ratio at or below 36%.

How do you calculate a debt-to-income ratio?

Simply add up all of your monsthly debts and divide that by your gross monthly income (your income before taxes and other deductions have been taken out) to get your debt-to-income ratio. The formula looks like this:

Total Monthly Debts / Gross Monthly Income

Here’s an example. Let’s say you pay $400 a month for your car loan, $300 for your student loans and $300 for the rest of your monthly debts. This totals $1,000 a month in debt payments. If your gross income per month is $3,000, your debt-to-income ratio would be calculated as follows:

$1,000 / $3,000 = 0.33 = 33%

Your monthly debt-to-income ratio is 33%.

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4 Ways to Avoid Overdrawing Your Account

by Andrew Schreiber 10. December 2014

Where does all the money go?

Overdrawing your account can be a common occurrence for some and it can be a rare occasion for others. Either way, the hefty fine that goes along with it is enough to make you want to avoid the incident altogether. Here are a few tips to mitigate the risk of overdrawing your account.

1) Use Mobile Banking

Using mobile banking is a great way to always know the current balance in your account. It's a great solution that practically anyone with any type of phone can use. If you have an old school flip phone, you can use text banking. This is a great way to find out your balance quickly before making a purchase. Those that have smartphones have the ability to download bank apps, and some banks offer Mobile Browsers as an alternative if they do not have an app for your specific device.

2) Use a Credit Card

Credit cards are good product for customers that are more financially responsible. Instead of having to worry about each and every transaction in a given month, you only need to make one payment a month. This is definitely something that should be used by individuals who are cognizant of what they spend. Those who have a shopping problem or don’t feel comfortable managing a monthly budget probably shouldn’t use this tactic.

3) Get Online Alerts

Most banks offer alerts through their online banking service. You can receive an email and/or text message for any activity you define. For example, you can set it up so you receive an alert if your balance falls below $100. This is a great way to notify yourself that you are getting close to overdrawing your account.

4) Store Extra Cash

This is a good tactic for those who still balance a checkbook, which fewer and fewer people are doing these days. You put additional cash in your account and try to forget it's there. That way, in case you accidentally think you overdraw your account, that buffer cash will cover it. If you track your balances electronically, you may not find this approach to be as beneficial.

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The Scary Cost of Halloween

by Andrew Schreiber 25. October 2013

HalloweenFall is upon us and so is the holiday of Halloween. Costumes are not the only thing to be frightened of this holiday but also the cost that is associated with the holiday. According to a survey done by Prosper Insights & Analytics, nearly 158 million people will celebrate Halloween this year. People will celebrate the holiday in many ways, including attending Halloween parties and haunted houses, pumpkin carving, and trick-or-treating. It is safe to say that Halloween is no longer celebrated one night a year.

We’ve all known that Halloween is a big business holiday for candy companies, but it has grown beyond that. This year it is estimated that over $2 billion will be spent on candy. Costume companies will also be happy to know that an estimated total of $2.6 billion will be spent on Halloween costumes in 2013. Costumes are not limited to children. Adults will spend $1.22 billion on costumes for themselves and $330 million on costumes for pets. Halloween decorations account for $1.96 billion that people will spend this time of the year. This holiday is gradually becoming one of the more expensive holidays for consumers.

Another industry that is sharing in the Halloween spirit is beer companies. We are seeing more and more seasonally flavored beers being offered by companies. You have to serve your guests something when they show up to your Halloween party - why not serve a beer that fits the theme? This is an interesting way to capitalize off the celebration of Halloween.

Americans will spend an estimated $6.9 billion total on Halloween this year, according to the National Retail Federation (excluding cost of seasonal beer). Whether you have kids that are trick-or-treating or you plan on attending a Halloween party, this holiday is becoming a bigger deal on your finances.

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