What is a Debt to Income Ratio?

Debt-income ratio = annual debt / year after-tax income. This indicator reflects the strength of expenditure ability. The critical value is 40%. When this value is reached, it indicates that short-term debt service ability can be guaranteed. This ratio can reflect the customer's financial well-being in a certain period.

Debt-income ratio

Right!

Debt-to-income ratio = annual debt / year after-tax income. This indicator reflects the strength of the spending ability. The critical value is 40%. When this value is reached, it indicates that short-term debt repayment ability can be guaranteed. This ratio can reflect the customer's financial well-being in a certain period.

Chinese name

Debt-income ratio

Foreign name

Debt to income ratio

Calculation formula

Annual Liabilities / Annual Income After Tax

Critical value

40%

Debt-to-income ratio = household debt expenditure / current income

Debt life of households with annual salary of 200,000 (before tax)

Xiao Jing lives in Beijing and is engaged in financial work in a foreign-funded enterprise with a monthly income (after tax) of 7,000 yuan. Xiao Jing's husband is an engineer in an IT company. His monthly income (after tax) is 9,000 yuan. Their family is an enviable white-collar worker of foreign-funded enterprises. The couple's annual pre-tax income exceeds 200,000. In 2005, they bought a house of 800,000 yuan on the side of the Third Ring Road, with a down payment of 20%. In order to reduce the total repayment amount, they chose the equal principal repayment method, which will be paid off in 30 years and paid monthly The section is about 5400 yuan. At that time, housing prices were soaring, and their first home soon appreciated. This allowed them to see the hope of rich real estate, so they borrowed some money from their parents, with a vision of nature and real estate appreciation. Expect to invest a 700,000 yuan townhouse in the suburbs. The good petty life made this family carry 3,600 yuan of debt every month. When Xiao Jing was pregnant, for the convenience of transportation, she gritted her teeth and bought a Volkswagen POLO on loan, with a 20% down payment and a loan of 5 years, which was another 2,000 yuan per month. As a result, the household's fixed monthly liabilities are:
5400 + 3600 + 2000 = 11000
Let s calculate, the debt-to-income ratio = 11000/16000 = 68.75%
We said earlier that the value of this indicator should not exceed 40%. If the debt is too large, the family will have a heavy burden on life and mentality. Obviously, the debt ratio of Xiaojing's family is too high. Since carrying these loans, Xiao Jing is worried about losing her job, afraid of losing her job, not willing to spend money, often going to her parents' home to eat and eat, the leisure life is reduced, and she has a chance to make money.
According to surveys, 70% of the "house slaves" currently have "sequelae" because of buying a house. Nearly 30% of the "house slaves" have been reduced to "latter old people" provided by their parents for basic living expenses. Xiao Jing often said: "Since having these debts, the quality of life has not only fallen by a notch! I now know what kind of life the 'room slave' has been." She, who had been to every party before, now disappeared from the party. , Learned to live a good life.
In fact, the real reason for the decline in the living standard of Xiaojing's family was not the loan itself, but the excessive debt-income ratio that exceeded the security alert. Debt within a reasonable range is a good way to increase investment capital, and a debt-to-income ratio of more than 40% will become a nightmare for life.
The advice to the Xiaojing family is:
(1) The townhouses in the suburbs should be listed for sale as soon as possible. Generally, the sale period of villas will be longer. While the real estate market is still hot, it may be cashed within six months.
(2) The car loan will be repaid in advance because the car is a consumable. While she pays 8% interest per year for the car loan, her car is depreciating at a rate of 15% per year.
(3) The remaining money is diversified according to the method I introduced in the follow-up article, and can get 5% to 10% of annual income, which can be used to offset the interest rate of the first home loan of 7% (possibly continuing to rise).
After reading our suggestion, Xiao Jing agreed with her. She didn't think she was a speculator for the benefit. There was nothing more comforting than the health and stability of family finances. "This may give up the opportunity for the villa to appreciate in the future. However, I understand that the opportunity to make money must also have sufficient capital conditions. Our current income does not have the strength to make such an investment, so it will cause overwhelming consequences. "
Xiao Jing adjusted the financial situation of the entire family. Not long ago, I contacted Xiao Jing, and she happily told me: "According to the advice given by the experts, the villa was successfully sold for 780,000 yuan, and the basic fee was deducted. There was no loss, and there was a slight surplus. The car loan and parents' money were repaid. Now there are only about 5,400 yuan per month in housing loans, and there is still money left to invest in the fund. It happens that the recent fund market has been bullish all the way, and it has earned. A lot of them! "Xiao Jing said to me happily," Now I'm no longer anxious as before, and spend more time with my son. We also found a holiday farm in the suburbs. It's very convenient. When we enjoy nature, we bring our children over, and the cost is very cheap. There is no pressure at all. "Listening to Xiao Jing's cheerful voice on the other side of the phone, I know that another family is enjoying the joy of financial health.