The debt service ratio is a measurement of the debt load of a household and an indicator of whether the household is close to being unable to make monthly payments on its debts. It is a ratio of a household's after-tax income to its debt load. A value of 40 percent or higher indicates a danger that you may not be able to keep up with debt payments.
Instructions
1. Add all your household's monthly sources of income after taxes. For example, take a couple in which the husband earns $1,000 a month after taxes, the wife earns $1,200 after taxes and together they make $500 a month after taxes renting a room in their house. Their total monthly income would be $1,000 + $1,200 + $500 = $2,700.
2. Add all debt payments you owe monthly. Continuing the example, if the couple has a mortgage payment of $900, car payments of $400 and credit card debt of $300, then their total debt payments would be $1,600.
3. Divide your total monthly debt by your total income after taxes and multiply the result by 100 to get your debt service ratio. Finishing the example, the debt service ratio is $1,600 ÷ $2,700 x 100 = 59.3%, well above the acceptable debt load.
