Calculating your Debts - How the Banks see your Debts and Bill Payments

Since you have completed Calculating your income it is now time to take a look at where all that income is going. In particular - how much of your pay is being spent on servicing your existing debts?

Banks and other financial institutions are only interested in the following financial obligations when calculating your Total Debt-Servicing Ratio:

  • Rents / Mortgages - payment amount per the agreement - in the case of Mortgages also add the monthly property tax payment amount
  • Loans - payments per the agreement with the creditor
  • Lines of Credit - 3% of the outstanding balance
  • Alimonies / Child Support / Spouse Support - Full monthly payment amount
  • Car Leases / Financing Payments
  • Credit Cards - 3% of the outstanding balances monthly

The following items WILL NOT be factored into your debt-servicing amount:

  • Bill Payments - The Banks are not interested in your cell phone, utilities, gym membership, magazine subscription or anything other than the items listed above.

Rent - Even if you report to the bank that you are living with family or friends and have no rent obligation - they will still calculate a minimal rent based on your area of residence (usually between $500.00 - $1,000.00 monthly.)

Special Considerations:
Some Banks may weigh your available credit into the equation - if you have a substantial amount of credit available to you that can be accessed at any time.

Now that you know your Debt Servicing number it's time to proceed to the calculation.

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Received Dec 23, 2013 via email
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