How to calculate your debt-to-income ratio? Calculate debt income ratio tutorial 2021 as the measure that helps you see what your financial stability is.
Healthy personal finances are important for future economic health.
When you want to achieve financial freedom, one of the fundamental legs to achieve success lies in having orderly accounts. For this, the relevance of financial planning each year and keeping to the budget is paramount.
To develop a correct saving habit, experts in financial planning always advise not to enter more than what is spent, control monthly expenses as accurately as possible, automate saving or try to generate passive income.
But beyond that, it is interesting that you know the importance of the debt-to-income ratio that you have, how to calculate it and how to keep it under control to avoid more problems in the future.
Calculate debt income ratio tutorial 2021
The debt-to-income ratio is a way in which the entities that lend you the money measure their ability to manage the payments that you must make monthly to pay the principal that they have lent you. This ratio is one of the ways lenders measure their ability to manage the fees you pay each month. That is, your degree of solvency.
Your debt-to-income ratio indicates the proportion of your monthly income that goes toward paying off your debt. It can be calculated as a percentage. The procedure for calculating this ratio involves knowing your total monthly debt payment obligation and your monthly gross income.
To calculate the debt-to-income ratio, you should add up all your monthly payments and divide them by the gross income you receive per month. Monthly gross compensation is usually the amount of money you earn before taxes and other deductions.
For example, if you pay 500 euros a month for your mortgage, another 200 euros a month for the car loan, and 100 euros a month for the rest of your debts, your monthly payments are 1,200 euros. (500 + 200 + 100 = 800).
Thus, if your gross monthly income is 2,500 euros per month (it can be the sum of what you earn as a couple), then your debt-to-income ratio is 32%.
Calculate debt income ratio tutorial 2021
Evidence from various mortgage loan studies suggests that borrowers with a higher debt-to-income ratio are more likely to default on monthly payments.
A debt-to-income ratio of 43% is important because, in most cases, it is the highest ratio a financial institution can assume to offer a mortgage.
However, there are some exceptions. For example, a small creditor must consider their debt-to-income ratio or level of indebtedness, but is authorized to offer a qualified mortgage with an indebtedness rate greater than 43%. In most cases, a lender is considered a small creditor if it had less than 2 billion euros in assets in the last year and issued no more than 500 mortgages in the previous year.
Calculate debt income ratio tutorial 2021
At this point, the question arises as to what a good debt-to-income ratio is. As a rule, a lower percentage is considered better. A ratio of around 10 per cent would indicate that only one tenth of the available funds are being used for debt repayment.
However, if the ratio were higher, above 60%, it could be a sign of very high indebtedness. If 60% of the gross income of a home economy were used to pay off debts, it would leave very little money for other expenses.
Therefore, a ratio equal to or less than 36 per cent is considered acceptable. A low ratio means you can borrow more. However, if the ratio is high, you should focus on ways to reduce it rather than getting more debt.
Calculate debt income ratio tutorial 2021
More news:
Inditex and Naturgy leave the list of the 500 richest companies of 'Fortune' in a generalized collapse of Spanish multinationals
The latest edition of the Fortune 500 list, which establishes the richest companies in the world, has been a serious blow to prestige for the main Spanish companies. They all plummet in the ranking and even 2 of them come out.
These are the cases of the fashion multinational Inditex and the energetic Naturgy Energy, which in 2020 had negative results to the point of not appearing on the list of Fortune magazine.
The Inditex group billed 20,402 million euros last year, 27.9% less than in 2019 and at the level of 5 years ago. Likewise, profits fell by 69.6%, to 1,106 million euros. Naturgy, meanwhile, lost 347 million in 2020, when it billed 15,345 million.
The editor of the list, Scott DeCarlo, has assured Efe that Inditex and Naturgy Energy "have fallen from the latest edition of the Fortune Global 500 list due to the negative impact of the covid pandemic on their revenues in fiscal year 2020".
A situation that is replicated in the rest of the national multinationals. The most notable falls are those suffered by Repsol and BBVA.
The energy multinational falls 136 positions, to 381, after billing 32% less last year. Repsol had losses in 2020 of 3,289 million euros, which has helped that fall in positions.
BBVA, the other big victim in this list, drops 83 places, to 377. The bank had a fall in revenues of more than 23% and a profit of 1,305 million euros, which represent a decrease of almost 63%.
Less pronounced have been the falls in the list of Mapfre, Santander, Telefónica, ACS and Iberdrola, with declines of between 16 and 27 places, although they help to glimpse a downward trend.
The impact of the coronavirus has not been noticed only in Spanish companies. The total wealth of all listing companies accounts for a third of the world's gross domestic product, but, due to the crisis resulting from the pandemic, it has contracted 4.8% compared to last year.
It should be noted that the economic valuation taken into account by Fortune managers corresponds to last year, so the situation of some of these companies has changed for the better in this time.
As the editor of the list points out, "the Global 500 is a picture of a world we are quickly leaving behind and also a guide to the new environment that is forming".
Even so, the role of the 7 Spanish multinationals that appear in the ranking of companies with higher incomes is very small when compared to that of other countries. China leads the list (including Hong Kong), with 135 companies, 11 more than in the previous edition. The United States, second on the list, with 122 companies, contributes one more than last year. Japan, for its part, adds 53, the same as in the past Fortune 500.
Regarding the companies that lead the ranking, the United States has among the top 10 to 5 of its multinationals: Walmart, Amazon, Apple, CVS Health and UnitedHealth Group. China, in turn, has 3 companies in the lead: State Grid, China National Petroleum and Sinopec.