Safe Debt Ratio? Say what?
When you accumulate debt, there are a multitude of aspects that need to be given consideration. It is common knowledge that debt can get you into a whole world of complications. That doesn’t mean that there won’t be times where debt is necessary.
If you stay away from debt your whole life, you may find it difficult to make many major purchases. Not everyone has hundreds of thousands of dollars laying around with which to purchase a house or a car upfront. It’s not logical for one to assume that without a little bit of help that these kinds of purchases can be made without taking on at least a little bit of debt.
Debt Ratio And The Real Estate Advantages
When considering debt ratios, one must be reasonable and make sure that it remains within certain limits. A debt ratio corresponds with how much you owe in comparison to how much you’re making. In order to make major purchases in your life, you’re probably going to need to spend money you don’t have quite yet. If this is something you_re considering, you should just keep in mind that it’ll only be worth it if you’re getting what you pay for, and will benefit from the purchase in the long run.
Real estate is an example of a kind of purchase that might benefit you in this capacity. Even though you might go into debt when buying a house, by staying in a neighborhood and allowing the property value to increase and by doing home improvement projects to increase the value of the house itself, you can turn around and sell the house later and turn a profit! In such a scenario, the debt ratio makes sense, and the purchase justifies any potential risk.
If your purchase cannot acquire value in a similar manner, you’ll find the debt ratio harder to justify. Shopping sprees and the like, for example, rarely profit you in the long term, and in their inability to bring money back to you, wind up increasing burden on you.
So when considering debt ratio, it’s key to think about what the purchase can give you in the long run. Putting yourself in a situation where you find it difficult to pay back debts because of a poor debt ration puts your financial health in danger. Be smart about it, and your credit score will continue to soar.
Debt to Income Ratio – compares your monthly debt payments to your monthly income and is a widely used measure of your creditworthiness.