Debt-Safety Ratio |
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The proportion of total monthly consumer credit obligations (payments) to total monthly take-home pay. The formula to compute the debt-safety ratio is: For example, a married couple with a total of $450 per month in consumer loan payments and total monthly income of $2,500 would have a debt-safety ratio of 18%. (450 / 2500 = .18, or 18%) Most experts regard a level of 20 percent as the maximum debt-safety ratio; however, they strongly recommend a level closer to 10 or 15 percent, or perhaps even lower if you are planning on applying for a mortgage in the upcoming months. SEE ALSO: Debt-Service Ratio | |||