genesis domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /services/webpages/f/i/financialpsychologycenter.com/public/wp-includes/functions.php on line 6114(DollarSprout) – Our number one goal at DollarSprout is to help readers improve their financial lives, and we regularly partner with companies that share that same vision. If purchase or signup is made through our Partners\u2019 links, we receive compensation for the referral. Here\u2019s how we make money.<\/a><\/p>\n Debt is a four-letter word in many households. Some people don\u2019t want to talk about it or face the debt they owe. Whether it\u2019s because they\u2019re ashamed of their debt or they don\u2019t know how they\u2019re going to pay it back, ignoring debt can become a significant problem.<\/p>\n If you\u2019ve been ignoring your debt, you aren\u2019t alone. But figuring out how much you owe can help you take control of your situation.<\/p>\n According to a recent study from\u00a0Northwestern Mutual<\/a><\/strong>, more than one in three Americans don\u2019t know how much of their monthly income goes toward paying off debt. To make matters worse, roughly one in five Americans don\u2019t know how much debt they carry.<\/p>\n When we\u2019re faced with something we\u2019re uncomfortable with, the first reaction to stress or fear is avoidance, according to Dr. Alex Melkumian, founder of the Financial Psychology Center in Los Angeles, California.<\/p>\n The Northwestern Mutual study found that 45% of Americans with debt feel anxious, 35% feel guilty, and 20% feel physically ill about their debt at least once a month.<\/p>\n Anxiety can become a self-fulfilling prophecy. If you\u2019re anxious about your debt, you won\u2019t feel motivated to tackle it. But the more you ignore it, the more anxious you may feel. This creates a negative feedback loop that can be hard to stop.<\/p>\n Anxiety can create physical symptoms such as muscle tension, shortness of breath, insomnia, and fatigue, Dr. Melkumian said. People with these symptoms may not be able to confront their debt as easily as others.<\/p>\n Others may avoid their debt because the total amount owed is significant, and it will take a long time to pay it off. About 12% of people had no clue how long they\u2019d be in debt, while 15% of people believed they\u2019d be in debt for the rest of their lives.<\/p>\n \u201cPeople think of their debt as scary by the time it accrues to a certain number,\u201d Dr. Melkumian said.<\/p>\n This number varies by person, but the longer you feel you\u2019ll be in debt ,the more hopeless you may feel about your situation.<\/p>\n Related:\u00a0How to Pay Off Unexpected Medical Debt<\/a><\/strong><\/p>\n Some people don\u2019t check how much they owe because it\u2019s not a pressing issue. They may feel like they have a good handle on their financial situation. They make their payments without any issues, but still can\u2019t calculate how much of their income goes toward debt.<\/p>\n \u201cI am one of those Americans who didn\u2019t know how much debt they had,\u201d said Steffa Mantilla, owner of the personal finance blog Money Tamer. \u201cWe would purchase everything based on the payments. If the car dealership or furniture store ran our credit and said we could afford it, we\u2019d go forward. Over time, it adds up and you don\u2019t realize that you have thousands of dollars leaving every month via monthly payments.\u201d<\/p>\n To calculate the percentage that your monthly debt payments take up compared to your income, you have to know your combined debt and income numbers. These numbers aren\u2019t readily available for people who aren\u2019t tracking their payments regularly. They have to spend time researching and compiling this information to get the answer.<\/p>\n Related:\u00a0Here\u2019s How One Family Paid Off $120,000 to Become Debt Free<\/a><\/strong><\/p>\n While ignorance may feel like bliss, being oblivious about your debt won\u2019t help improve your finances. Even if your monthly payments are under control, being aware of how much you owe and how much of your income goes toward paying off debt is important. It may motivate you to\u00a0get out of debt<\/a><\/strong>\u00a0faster.<\/p>\n \u201cKnowing how much debt you have gives you clarity and the power of choice,\u201d Dr. Melkumian said.<\/p>\n Being aware of your debt situation helps you gauge how much money is left to tackle your other financial priorities. This can include saving for retirement, paying for your child\u2019s college education, or traveling abroad. The less you owe, the more you have available for other goals.<\/p>\n If you plan to apply for a mortgage, knowing your debt-to-income ratio is vital. Lenders require your debt-to-income ratio to be below a certain amount to qualify for various loan programs.<\/p>\n While the ideal goal is maintaining a debt-to-income ratio of less than 36%, a few mortgage programs allow ratios as high as 50%. If you know your debt-to-income ratio, you can figure out how large of a mortgage you may be able to get approved for based on your current income and debt levels.<\/p>\n Related:\u00a0How to Get Your Spouse on Board with Paying Off Debt<\/a><\/strong><\/p>\n You can calculate your total debt in two main ways. First, add up the balance you owe on each of your loans and lines of credit, including credit cards, student loans, car loans, mortgages, personal loans, and and any other outstanding debts.<\/p>\n The other way to calculate your total debt is to add up the monthly payments you make each month. This can help you answer the question of how much of your monthly income goes toward paying off debt. For most types of debt, use the minimum amount due each month.<\/p>\n When using the monthly payment method, calculating your mortgage payment is an exception. You can\u2019t always add your full monthly mortgage payment. Most people have an escrow payment (used to pay homeowners insurance and property taxes) as part of their monthly payment.<\/p>\n To get the debt portion of your mortgage payment, consult your mortgage statement. Then, add the principal, interest, and private mortgage insurance (PMI), if applicable.<\/p>\n Once you know the total debt payments, divide it by your monthly income. This method gives you insight into how much of your income goes toward making your debt payments each month. Once you have this information, you can calculate your debt-to-income ratio.<\/p>\n Finding how much you owe can be problematic if you haven\u2019t been tracking it in the past. First, decide what kind of system you want to use to track your debt.<\/p>\n \u201cIf you\u2019re a paper and pencil person, then do that,\u201d Dr. Melkumian said. \u201cIf you\u2019re very high tech, then you can do your own spreadsheet.\u201d<\/p>\n You can find your debt in a couple of ways. The first is to watch for all debt-related bills you get over the next month. Every time you get a bill emailed or sent to you, put it in a folder. At the end of the month, add up all of the debt.<\/p>\n Your credit reports can help you find your debt faster. You can visit\u00a0AnnualCreditReport.com<\/a><\/strong>\u00a0to get a copy of your credit report from Equifax, Experian, and TransUnion. The information may not be 100% up to date because it may not reflect your most recent payments, but it should be fairly accurate.<\/p>\n If your creditors don\u2019t report a debt to one of the bureaus, then it won\u2019t show on your credit report. That\u2019s why you should double check this against the bills you receive and the payments you make.<\/p>\n Calculating your debt-to-income ratio is easy once you pull together the underlying numbers. There are two ratios you can calculate. The ratios use the same numbers for debt, which is your total monthly debt payments. However, they use different numbers for income.<\/p>\n The first debt-to-income ratio uses your gross income. Your gross income is all income you receive before taxes or other payroll deductions. For salaried individuals, this is your salary. For hourly individuals, it\u2019s your hourly rate multiplied by the number of hours you work.<\/p>\n To calculate your debt-to-income ratio based on your gross income, divide your monthly debt payments by your gross income. You can use this\u00a0debt-to-income calculator<\/a><\/strong>\u00a0to do the math for you. This is the debt-to-income ratio most mortgage lenders use when calculating how much mortgage you can get approved for.<\/p>\n This is the amount of money that\u2019s actually deposited in your bank account on payday. However, many people have their healthcare premiums or 401(k) contributions taken out of their income. If that\u2019s true in your case, you\u2019ll add those back in for the sake of this ratio.<\/p>\n To calculate your debt-to-income ratio based on your net income, divide your monthly debt payments by your net income. This ratio is more useful for figuring out how much of your available income goes toward debt payments each month.<\/p>\n Figuring out exactly how much you owe can be an eye-opening experience. For some, it\u2019s less than they thought. For others, it\u2019s much more.<\/p>\n Regardless of what you find out, knowing your numbers gives you the power to change your situation for the better. Once you know where you stand, you can start getting out of debt. This may include\u00a0creating a budget<\/strong><\/a>, starting a side hustle, or becoming more mindful of how you spend money.<\/p>\nWhy 1 in 3 Don\u2019t Know About Their Debt<\/h2>\n
Debt may cause stress, anxiety, and physical illness.<\/h3>\n
Large amounts of debt can cause a feeling of hopelessness.<\/h3>\n
Why Knowing Your Debt is Helpful<\/h2>\n
How to Calculate Your Total Debt<\/h2>\n
Where to find your debt<\/h3>\n
How to calculate your debt-to-income ratio<\/h3>\n
Finding Your Total Debt Can Be a Wake-Up Call<\/h2>\n