Debt-To-Income Ratio
Recurring debt has a direct effect on the debt-to-income ratio which is is the percentage of a consumer’s monthly gross income that goes toward paying debts. This ratio also known as the back ratio, which indicates the percentage of income that goes toward paying all recurring debt payments, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.
In simpler terms the debt-to-income ratio directly affects a persons ability to take on new debt. If income is greater than debt then the ability to take on new debt is present. If debt is greater than income then the ability to take on new debt is eliminated. It is that simple to understand. A negative debt-to-income ratio will also have a direct impact on credit score and credit report.
The most effective way to have a healthy debt-to-income ratio is to pay off loans in the time agreed with lenders and creditors. This will allow the luxury to take on new debt. What happens when the terms agreed on for re-payment are not met? Very simple, missed payments bring on collection efforts from creditors and collection agencies and maybe even legal action further on down the road. Credit scores will be reduced and credit reports will show negative marks thus making a person a liability in the eyes of lenders. If in fact a person reaches this situation, one of the best alternatives to bring this debt-to-income ratio back to health is to negotiate on the outstanding debt. The best way to this is to contact a company with experience in the field of negotiations.
Debt negotiation is geared to eliminate large amounts of debt as quickly as possible in the least amount of time which will help improve the debt-to-income ratio. This is a better alternative than having to endure the stigma of bad credit, collection calls and correspondence. In this situation it is advisable to negotiate one or two accounts at a time starting with the account with the least debt. Accounts that can be negotiated for settlements are categorized as unsecured debt. These accounts include but are not limited to credit cards, personal loans, medical bills, repossessions, unsecured student loans, etc.. Secured accounts such as mortgages and car loans cannot be negotiated for settlement.
Once all debt is eliminated it is advisable to begin a credit repair program. Credit repair programs will do just what their name suggests. They will contact the credit reporting bureaus and show proof that all accounts have either been settled or paid in full. Many of these services are inexpensive and credit could be back in good standing in as little as six to twelve months. The ability to take on new debt will then become a reality keeping in mind the mistakes of the past.
Eric Gartle has worked in the debt settlement industry for the last 10 years and has vast experience negotiating personal as well as business debt.
For more information please visit http://www.pemperandgartle.com
Add comment January 14th, 2008
