The accumulation of debt is something that many Kansas City residents share.  Debt comes in the form of credit cards, personal loans, automobile loans, student loans, medical expenses and home mortgages, among others.  Some debt is seen as good for your credit score, while other debt is seen as very bad.  Bad debt includes, but is not limited to, high interest credit cards (including department store credit cards), short-term payday loans, and other installment loans with interest rates that can be a devastating blow to your financial situation.  When it comes to making a big purchase in life, such as an automobile, home, and/or other property, your debt to income ratio is an extremely important factor that lenders consider when evaluating a loan application.

What is Debt to Income Ratio?

Debt to income ratio is the percentage of your income that is used to pay off debt.  An individual with a lower debt to income ratio has a better chance of getting a loan or mortgage.  Further, that individual may get a lower interest rate that is only available for those with relatively low “bad debt.”  Individuals with high credit card debt may still qualify for a loan or mortgage, but they may not benefit from the best interest rate.  A healthy debt to income ratio is around 25 to 35 percent.  Being able to manage this debt demonstrates that one is creditworthy and likely to make payments on time if approved for a loan or mortgage.

When Your Debt to Income Ratio May Lead to Bankruptcy

Having credit card debt, personal loan debt, and unpaid medical bills can certainly be a financial burden if your income isn’t quite high enough to keep your head above water.  When an individual’s debt to income level reaches 40 or even 50 percent, then there is a chance that the debt may begin to overcome any income received, and a debt-elimination solution may be necessary.  However, it is important to keep in mind that each individual’s financial situation will be unique, and a person with a debt to income ratio of 50 percent may still be able to manage such debt, while others may not.

If you continue to accumulate debt month after month instead of reducing your debt, bankruptcy is an option you may consider in order to eliminate your debt and start fresh.  If bankruptcy is not right for you, another debt-elimination option such as credit counseling or debt settlement should be considered.  You should discover your options with a qualified legal professional.

Plan for the Future

If you have not yet purchased a home or car, you should have a goal of keeping your debt to income ratio low enough for creditors to consider you a “low risk” applicant.  This can be done by taking charge of your debt now and wait to apply for a loan or mortgage until you debt to income ratio is lower.  Managing and eliminating debt is certainly not easy.  However, with the assistance of a Kansas City Bankruptcy Attorney, you will understand what you need to do in order to become financially healthy.

Contact Kansas City Bankruptcy Attorney Douglas Breyfogle Today to Schedule a Free Consultation

Debt comes in many shapes and forms.  Some debt is good, and some debt is very bad.  Having a thorough understanding of what you can afford and the amount of debt you are able to manage is essential to financial freedom.  If you are struggling with debt, no matter what kind, it may be time to speak with a seasoned Kansas City Bankruptcy Attorney who can help you explore options to manage or completely eliminate your debt.  With more than twenty years of experience, Kansas City Debt-Relief Attorney Douglas Breyfogle has the necessary tools and advocacy skills to ensure you are receiving the best legal representation possible.  Mr. Breyfogle truly cares about his clients’ needs, rights, wishes and concerns.  If you have tried to eliminate your debt, but cannot come above water, you should consider speaking with Mr. Breyfogle right away.  To schedule your free consultation, contact our office today by calling (913) 742-8700.