Total Debt Servicing Ratio - The other way that lenders judge your financial position when determining if you should qualify for new credit accounts.

How To Qualify For a Consolidation Loan

Consolidation loans are generally accepted as the most fundamental solution for high-interest debt and credit maintnance. Usually, these consolidation or "debt pay-out" loans are structured in a manner such that the normal overall monthly minimum payments are slightly reduced, depending on the term of the loan. In situations of high-interest balances and/or recently delinquent accounts, Canada Debt Settlements will always recommend to the client to apply for a consolidation loan prior to other options, where the expectation of an approval is reasonable:

  1. Sufficient income* in relation to overall debt (see Total-Debt-Servicing Ratio)
  2. Reasonable Credit Rating History (see Credit Rating System & Beacon Score)

How to calculate your TDSR

Return to: TDSR Homepage

Now that you've calculated your income and calculated your debts it's time to proceed to calculating your Total Debt Servicing Ratio.

From your income calculation you are aware of:

  • Your monthly income
  • your spouse's monthly income (if applicable)
  • income from other sources like rental income, investments, etc.

From your debt calculation you are aware of:

  • Monthly housing costs (mortgage/rent/taxes/and half of your heating bill)
  • car lease or loan payments
  • 3% of your credit card balances
  • 3% of your credit line balances

Simply divide what you are spending by what you are making and you should get a number less than one - If the number is greater than 0.75 - please give us a call immediately to check your math - you may have an issue moving forward and obtaining credit with a financial institution.

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.

How to Calculate your Income - In the eyes of financial institutions

Return to: TDSR Homepage

When calculating your TDSR Total Debt-Servicing ratio the following indicates how income should be calculated:

How to calculate your income:

Weekly pay (every week)
Multiply your average paycheque amount by 52 (pay periods per year) and divide by 12 months to get your monthly income number
Bi-Weekly pay (every other week)
Multiply your average paycheque amount by 26 (pay periods per year) and divide by 12 months to get your monthly income number
Bi-Monthly Salary (1st and 15th)
Multiply your pay by 24 and divide by 12
Variable pay amounts (contract work, commission, etc)
Use a period of 30 to 60 days taking into account all income and figure out your average monthly income

Total Debt Servicing Ratio (TDSR)

The total debt-servicing ratio (TDSR) is used by most financial institutions (creditors) to determine if a client should qualify for new credit. Most likely you wonder how it is calculated and how you can demonstrate your credit worthiness to a bank during the application process.

The first thing you need to do is calculate your monthly income as a household. Banks are always looking at a gross numbers for income. In the case of business owners or self-employed individuals they have the ability to 'back-out' business expenses from their gross income prior to listing it (things like cell phone charges, advertising costs, office space rental, etc.)

The second step is to calculate your monthly expenses as the financial institution will see them. Only certain expenses qualify for the calculation including Rent/Mortgage payments, heating bills, debt payments (according to their calculations), Vehicle expenses, and spousal or child support payments.

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Another Successful Debt Settlement...

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If you’re doing your research looking for who is the right one for the job, I can honestly tell you save your time and money and go with Canada Debt Settlements. I would be happy to talk to anyone that has any uncertainty as the expertise and hard work Boaz did for us was truthfully incredible.
S.B. of Mississauga
Received Dec 23, 2013 via email
Total Savings: $18,000+

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