Assessing Your Current Debt Situation
To begin assessing your debt, you want to get all your debt listed in the same place so that you can see it all at once. The first step is to list all mortgage and consumer debt, including credit cards, auto loans, student loans, and any other personal debt.
You can print and use the worksheet provided here to list your current debt situation. If you have a copy of your current combined credit report in hand, the Consumer Debt Accounts worksheet is easy to complete. If you don’t, you’ll need to pull copies of all your credit-card and loan statements to obtain this information.
You should get a copy of your credit report each year. It’s easy. If you haven’t obtained one this year, you can get a free copy of your credit report online.
Add up the total of your required monthly debt service payments and divide that amount by your monthly gross income. The result is your back-end ratio, which should be no more than 36%.
After you’ve completed the worksheet, figure out which debts are consumer debts. One by one, review each of your consumer debts in detail and then complete the Consumer Debt Accounts Details worksheet provided here:
You can obtain some of the info you need to complete this worksheet from your credit report (if you have it handy); however, most of what you need is available only on your monthly account statement. Also, here are a few additional guidelines you need to know in order to complete this worksheet:
To figure out the ratio of balance to available credit of an account, divide the current balance by the credit line. (For high credit scores, the ratio shouldn’t exceed 30 percent.)
If you currently have a teaser rate, expect that at some point in the near future the current interest rate will be drastically higher.
When determining the term of your loan, you want to check whether you have a fixed or variable rate, a balloon payment, or loans amortized over a period of time (30 years, 5 years, and so on).