What is the ratio of personal debt?
Personal debt ratio is the calculation of the total debt transported by an individual compared to the value of any assets also held by an individual. The concept of personal debt ratios is often used by the creditor to determine whether a loan applicant or other types of funding represents a certain degree of risk that the creditor considers unacceptable. The identification of this type of ratio is also useful in terms of determining the household budget and involvement in the task of administration of personal debts.
with a favorable ratio of personal debt individual of its own asset, which has more market value than the total amount of its outstanding debts. An unsecured debt will be considered for the purpose of evaluating the financial situation of the individual. This means that the owner of a house with real estate, which is currently not a mortgage, but has some credit card debt, will have a favorable ratio. At the same time owner of a house with a relatively small capital in actual and considerable amount of debt in the way of car loans and credit debtLips could have an unfavorable ratio.
As with the debt ratios of the company, there is usually a personal situation by distributing the amount of the debt by the total value of the asset. If the personal debt ratio is one or more, it indicates that the consumer has more debt than assets and may be at greater risk of failure on all or parts of this debt. In this scenario, potential creditors and creditors may consider this to indicate that the consumer should not take over any further debt and not to approve of loans or credit account requests. If the personal debt ratio is less than one, it suggests that the consumer has more assets than debts and can be a reasonable credit risk.
As far as personal budgeting is concerned, the determination of a personal debt ratio for the household is a great way to maintain a budget planning perspective. Calculation of the ratio from time to time helps households to find out if in factThey are heading towards a more stable financial situation or whether they reach the point at which the assets overtake obligations. The results of the calculation may help in the adjustments of expenditure and budget in general, hopefully, in the coming months, it will allow the desired personal debt ratio.