I always find stories that interest me in Glamour. It's my favorite magazine because I think it offers something for most women. An article titled "Make this the year you get out of debt" particularly caught my eye, and not just because it had debt in the title. The introduction to the story went like this:
"Molly, 24, is the luckiest person in the world. She has a new boyfriend, lives in a trendy Brooklyn neighborhood and has a stylish gig designing clothes for a company that flies her to Europe literally just to shop."
Sounds like she's got it made, until you read the rest of the article and discover that she has $79,000 in debt! That number made my jaw drop, as not a penny of that number is linked to a mortgage. She rents her apartment and has four maxed out credit cards. Molly's not alone with her ghastly debt; a LendingTree online survey showed that 32 percent of women ages 25 to 34 have at least $10,000 in credit card debt only.
Unless you're earning millions of dollars, carrying almost $80,000 in credit card debt is way too much. But is there any level of debt that's acceptable? I think many people decide they have too much debt when they simply feel like they've reached their threshold. But using your emotions to figure out your capacity for debt is like Karen Smith forecasting the weather via her breasts in Mean Girls. There's actually a pretty simple formula to help you figure out if you have too much debt. To find out what it is, just read more.
It's called your debt-to-income ratio (DTI) and to find it just divide your debt by your gross annual income. So, let's say Molly's income is $150,000 and she has $79,000 in debt. Those numbers would give her a debt-to-income ratio of about .53 or 53 percent. That means that over half of her earnings are going towards debt payments. If Molly tried to get a loan — or anyone else with a ratio above 45 percent — she would be perceived as being overextended and lenders would offer her higher interest rates. A ratio of 30 percent or lower indicates that you have enough gross income to make debt payments and your loan offers would be lower.
How's your DTI? Any surprises?
Philosophy di Alberta Ferretti
Vanessa Bruno
Decleor
so this is only credit card debt and not other kinds, like student loans? i have no credit card debt whatsoever, but according to this, i'm over the acceptable limit bc of student loans! does that mean i would get higher interest rates also?
131%, approx. Not too bad, although I didn't include my student loans in that since they are deferred for the next two years or so. Hopefully I will have paid off my credit card/current school bills debt before then!
2im at 3% if you are only doing CC debt. I also do have my car paid off. Yay! I also didn't include my school loans because that isn't considered "bad debt".
3Enh...30%. All I have to say is thank GOD i dont have $79,000 worth. Sheesh.
4wow! i keep AT LEAST 250 in my bank account, and pay off my credit cards immediately. i rarely use them, rarely. i have never been in debt with a bank, and never hope to be.
5i'd be frantic if that were me.
I don't have THAT MUCH debt but it is my resoultion to be debt free soon
Mine is
only 7% so to me, I can live with that. But only I couldn't live with myself being $80,000 in debt if it wasn't for a house or student loans!!!
6I'm not even doing student loans whe I go to school!
I have student loans as well. Do we count those in the formula? I guess we should, no?
7Ok, I'm confused. When I calculate my DTI w/ my student loans I come out at 26%. When I leave the student loans out I come up w/38% That seems like it should be the opposite way around.
Total debt (w/ student loans) 193K
Total debt (w/out student loans) 133k
Total Income 50K
50/193 = .259
850/133 = .376
I only have one credit card, and its at $3,500. BUT....if I add in my student loans, (about $29,000) I am WAY over where I should be. I am horrible with money....
9This is too much math, lol
10katejlogan, i think you're doing it backwards. it should be debt divided by income, not income divided by debt. try 193/50 and 133/50 and hopefully that should work.
11No I'm a Dave Ramsey fan so I think NO DEBT is the ideal debt but I think mortgages are something most people can't avoid. My ideal debt would be just my house. I'll get there soon...
12I have no debt whatsoever, which makes it hard for me to curb my spending! I feel like I'm shopping way too much, but I carry no educational debt, no credit card debt, no mortgage, no car payments, etc. However, I'm marrying someone with $250K medical school debt, and that terrifies me. I hate that I'm going from debt-free to gaining all his debt!
13i hv my car and student loans to pay off and cudn't agree more on wht u said abt glamour...i subscribe to it!
14I'm at 1% with no student loans, 11% with student loans.
15I am at 31% with only my CC debt. My car is paid off and I rent but when I factor in my student loans it jumps well above 45%. That is only undergraduate and post-grad loan debt. I have 3 years of law school loans that will be added to my current loan debt. Am I supposed to count those into my calculations to check my debt ratio?
16As far as I know, student loan debt doesn't count against you as "bad debt." I don't think lenders really count that while figuring out if you're eligible for a loan.
17If you don't count my $60K in student loans I'm not bad. Unfortunately...
18Hi everyone-
Just want to clear up some of the confusion around student loans. You should include your monthly student loan payments in calculating your DTI, as lenders do consider them part of your overall debt.
xo,
19Savvy
I cant believe 45% is considered ok or average or whatever...
20Thank god at the beginning of next month I will have no credit card debt. I do have a house payment and a car payment, but no student loans. I got lucky I guess that I went to an inexpensive college (if there is such a thing) and my parents could afford it without loans. My husband doesn't have any either that hass been a huge life saver to the both of us.
21I've got way below 45% but to me it's way too much
I've got a plan though and by my birthday
this year I will be debt free! What a lovely gift 
22ok so im on 33%, and thats practically over all. i didn't make the 30% or less cut, shucks, i really need to get my funds straightened out. i would so love to be debt free. that would be my goal this year! pay off everything!
23Phew. 7%. I thought things were much more dire than they are!! Maybe i should be more concerned with my utter lack of savings ... hmmm...
24I'm at 8% and the debt is purely from shopping/traveling too much.
My entire bonus is going to pay it off!
25When my husband and I were getting a house, they only financanced in my name, because I had no student loans and my husband did, so they must count for something when looking at getting a loan!
26I'm at 36%. I think I need a higher paying job. That's the only part that sucks about being a teacher.
27Was there a decision about factoring in mortgages?
28W/O it I'm 17.8%. Not awful, but not amazing either.
I can't do this without a calculator. Is that sad?
29I've got student loans AND credit card debt, but I can't calculate a DIT because I'm freelance and have no real "annual income," just whatever money I happen to make from project to project...which is why I have to have a credit card because without it I wouldn't be able to make it through tough times, like this pesky little strike.
I think I'm kind of okay. It's not $79,000 that's for sure!
30im not even gonna say mine. its bad!!! lol
31Omg, I can't believe I'm only ay 28%. That is surprising! But I'm not in love with my DTI either!
32at*
33ugh. with my car, it's 39%. with just cc debt, it's 1%. stupid car.
34We don't have a cent of credit card debt and don't have any car payments. BUT we have a $150,000 mortgage and almost that much in law school debt between us. I am feeling depressed
35Consolidate... consolidate... consolidate!
36Student Loans don't count right?
Ours is .51... last year it was .96 (and that was AFTER getting the steady paying job) so we're doing better!
This is a neat tool to gauge how in trouble we are with debt. Although we're shooting for the no debt part minus a mortgage when we do that!
37I think any amount of debt that compromises your standards of living and causes stress is too much.
38And $80,000 blows my mind!!
39Not counting my student loans.. which are currently more than what I make in a year... DCL ratio is 17%. Damn that sounds like a lot! And I only have $500 in credit card debt.. but an outstanding medical bill for $3,000. Stupid healthcare system!
40I have only 32% in DTI. That's pretty cool. Although with students loans its slightly higher. Good to know.
41Without my mortgage, it's 18%. But my mortgage is more than what I make in a year, so with that figured in, it's like 200%. Should I assume mortgages aren't usually included?
42Only reason for the CC was to obtain a good credit rating. The CC is enough to keep me nervous.
43Hi again!
Thought I'd make this easier and introduce this link:
http://www.bankrate.com/brm/calc/ratio-debt-calculator.asp
It's a DTI calculator. In terms of your mortgage, just factor in your monthly payment.
xo,
44Savvy
Question Savvy-
45On the automatic calculator, it says to include your minimum monthly credit card payments. I generally have a thousand or so dollars per month on my credit car, but I pay it off in full each month. Does this count as debt, or is debt only considered what you don't pay off, and what carries over from month to month? Also, if you don't own and don't have a mortgage, do you include the monthly rent? I'm presuming not, since we haven't borrowed the money and it just comes out of our monthly paycheck, but the website confused me with the term "monthly debt obligations" since obviously we do have to pay SOMEONE each month for our rent... just not a bank.
i think the website does a different calculation than the one posted here. doing total debt by yearly income, i get a DTI of 39%, but on the site, it was only 6%. that's a huge difference, obviously! i think it's because it goes by the amount you pay monthly.
julieulie, i know you're not asking me, but i don't think rent is included - otherwise, what would prevent from including things like your cell phone bill? rent, to me, is like a cell phone bill in that you're paying for usage (of your phone, of your apt - simplistically), not paying BACK something that's already been loaned/advanced to you (like a credit card bill). hmm...
46Ahaha, you're right, no debt is the ideal debt.
47I read that article too! At least she was being responsible about getting out of it though, but damn! PS. Have to say, much prefer Marie Claire to Glamour. But, this sounds like a debate for Buzzsugar
48Gah. I have a lot of student loans to pay off, not a lot of credit card debt though, so I'm below that 30%.
495% for me. I recently bought a car. I pay off my credit cards each month. A few years back I put everything into paying off my student loans. The day they were all paid really boosted my confidence and made me realize the power of budget, plan and consistency.
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