What is Your Debt-to-Income Ratio

Your Debt-to-Income ratio is the percentage of your monthly gross income that goes toward paying debts.  DTI, as it is referred to,  is a one of the key considerations that lenders take into account to assess if you are credit worthy or if you are a credit risk.

Here’s a quick guide that will help you determine yours.

Add all payments you make on any debt you may have including

  • Minimum Credit Card payments
  • Rent OR Mortgage (include Principal and Interest,  Property Taxes, Insurance, HOA)
  • Car Payment
  • Any loan obligations (student loans, short term loans, etc)
  • Child support or Alimony paid

Deduct the total of your debts from you total Income each month.  Include any alimony, bonuses, overtime pay, etc.

Divide your total DEBT by your total income = Your Debt to Income ratio.

What your Debt-to-Income Ratio means:

36% or less: This is a healthy debt load to carry for most people.

37%-42%: Not bad, but start paring debt now before you get in real trouble.

43%-49%: Financial difficulties are probably imminent unless you take immediate action.

50% or more:  You’re in the danger zone.  Get professional or legal help to help reduce or eliminate your debt.

Most Americans are in the 41-49% range, a zone where financial trouble is imminent.  A Debt-to-Income Ratio higher than 50% is living dangerously  as this often means that there is little money left over after paying off debts and living expenses.

If your debt-to-income ratio doesn’t paint the picture of economic health that you’d prefer to see, you’ll need to take steps to improve the picture. To find out how to move in the right direction, schedule a free consultation with me at any of my convenient locations in Glendale, West Covina, Cerritos or Valencia.   Or call my office at 866.477.7772.


Mistakes People Make That Mess Up Their Financial Lives (Part 2)

In Part 1 of this series, I talked about the fact that some people feel disconnected from their money.  “The Disconnected” view themselves as powerless when it comes to their money, as though they were puppets made to move and act at the whim of their money.  They don’t believe they have the power to change their financial circumstances.  When faced with a financial situation, they are often overwhelmed.   The Disconnected often dream of being rescued.  They dream of winning the lottery, or coming into an inheritance or meeting a benefactor who would gift them with the cash they need to stop being so broke all time.    What the Disconnected have in common is this:  They don’t plan for their bills nor their spending.  In other words, they do not budget.

Mistake Number 3:  Not having a Budget

I know most people hate the word “budget” because it sounds like being on a diet.  Some people also equate a budget to failure or lack.  Some see it as a sign that they’ve failed in managing their finances and now must be “punished” by a restrictive spending allowance.

But let me ask you this question:  Would you rather have a  plan in advance on how to spend your money or be simply left wondering as to where it all went after your money is gone?  You see, a budget is nothing more than a written record of your financial reality.  People who don’t want to look at the numbers are in denial about their situation so they would rather bury their head in the sand and pretend that the problems don’t exist.

Having a budget is the first step in gaining clarity about your financial situation and will  help you prioritize your spending.

To create a budget, first you’ll have to write down everything that you think you spend every month.  Include the rent, groceries, gas, eating out, clothes, etc.  If you are not sure, give it your best estimate.

Next, you need to track your expenses for at least one whole month.  Write down all your expenses every single day, no matter how small.  For example, if you spend $5 a day on a cup or two of coffee, write it down.  If you buy lottery tickets when you stoop at the gas station, write that down.  See how much you are spending on groceries, eating out, going to the movies, etc.

Next, figure out which expenses are fixed and which ones are adjustable.  Determine which expenses are necessary and which ones you can live without.

Once you have an entire month’s record of your actual living expenses, compare these with your estimates.  When you do this for the first time, you may be shocked ot see how much you are really spending on certain things.  As  you compare actual expenses to your estimates, now you can start setting goals for yourself.  Should you trim down expenses so you can have a surplus that you can start saving every month?  What expenses can you cut back on?  Maybe you are spending money on things you don’t even need.  Perhaps you’re spending so much money on eating out and don’t even realize it!

Think of the changes that may be necessary for you to be able to live within your means while still having a little bit left over to save at the end of the month.  Of course, in order for your budget to work, it needs to be realistic.  Otherwise, you may be setting yourself up for failure.  As you begin to understand where you money is going every month, soon you’ll be able to adjust your budget based on your individual needs.  The point is that your budget should be a tool to help you manage your money effectively.

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Mistakes People Make That Ruin Their Financial Lives (Part 1)

Turbulent financial times have caused many people to re-evaluate the way they handle their money. In times of uncertainty, it may be smart to evaluate what you are doing with your finances and make corrections if necessary.  There are no guarantees in life but avoiding these common mistakes can be crucial to your financial survival.

Mistake Number 1: Not knowing where your money goes every month

A lot of people who see me for bankruptcy counseling often tell me that no matter how hard they work, they never seem to have enough and are sometimes forced to borrow from their credit cards just to make ends meet.  Before they know it, they have borrowed more than they can pay back.  When was the last time you sat down to review your income and expenses in detail? A monthly budget allows you to plan ahead of time as to how you are going to spend your money – instead of just wondering afterwards where your money went. This may sound simplistic but trust me, a lot of people go through life without a financial plan and simply hope that somehow “things will be OK”.  You need to be deliberate in how you spend your money instead of just keeping your fingers crossed and hoping that somehow, it will all work out.  Having a plan also gives you the freedom to prioritize your needs especially if financial resources are limited.

Mistake Number 2: Not having an emergency fund

And why do you need an emergency fund? Because it is almost guaranteed that you will have some kind of financial emergency no matter how well you plan your life, that’s why!  A good rule of thumb is to have at least 3 months’ worth of living expenses so that if anything happens to your income, you will have something to live on while you find a way to replace the lost income.  Did you know that according to a recent study, most people don’t even have $3,000 in savings? This means that a lot of people are literally only one paycheck away from being bankrupt!  Having an emergency fund also keeps you from having to borrow money or tap into your retirement savings should an unexpected financial need arise.  Without it, a cash shortage can instantly turn into a financial crisis.

Of course, as a bankruptcy attorney, I know for a fact that one major deterrent in having a good financial plan is excessive indebtedness. If you can’t even pay your bills, how in the world can you even think about setting aside money every month for savings?   The first step to bring back order in your financial life is to take control of your debts!

Don’t hesitate to seek sound, legal counsel.  If you live in the Los Angeles metro, I have offices conveniently located in West Covina, Glendale, Cerritos and Valencia.   I’m here to help.

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Making The Decision To Get Out of Debt

At one time or another in life, you may face overwhelming debt problems.   Fortunately, in this country, we have federal laws that allow people to obtain debt relief and protection from legal action by their creditors.  Bankruptcy should never be your first option, of course, but when appropriate for your situation, it could actually turn out to be the best decision you’ve ever made.

A famous author said: “It is in those moments of decision that our destiny is shaped”.

Debt can and will determing how you will live your future.  It is an obvious but much ignored reality that many people with a heavy debt load live with the associated pressures and stress of servicing those debts.  Many may not be able to afford to take that family vacation, own a home, handle an emergency, or help their children through college.  Debt prevents people from saving for and funding their retirement, which is one of the key reasons why many people in America work past their sixties and seventies.

Yet, the decision to get out of debt is one that many postpone, believing that they can figure out a way to make more money or spend less.   The reality is that debt has a life of its own and is designed to make more money for your creditors, thanks to this thing called interest.   Most people with unmanageable debt cannot outrun the rate their debt grows with interest, penalties and fees.

To make the decision to get out of debt is to decide to change for the better your life and your future.

Filing for bankruptcy may feel like too drastic of a step at first but when viewed as a legal strategy or simply a tool to help you rebuild your finances, it is really not as bad as you think. Once you’ve come to the realization that it is your only way out of debt, you need to have a long-term perspective and see how it may benefit you in the long run. If your debt problems are making you very insecure about your financial future, the fresh financial start provided by the federal bankruptcy laws may be just what you need to start over.  But I understand that the decision to file is never an easy one- even when you know it’s the right thing to do.

I always tell my clients that my job is to help them understand their options but ultimately, they are responsible for making the decision that will change their situation.  The people who understand this are the ones who successfully recover from bankruptcy over a very short period of time.  Before long, they are able to move on with their lives after making the decision to put their past behind them and look forward instead of looking back.  They understand the power of decision.

The refusal to decide is also a decision in itself. By refusing to decide, you have made the decision to leave everything to chance and to simply accept whatever happens next.  But remember that debt problems don’t just solve themselves.  Sooner or later, you need to face them. Why wait until things get worse? There is power in decision-making. But only you have that power to take needed action to change your situation for the better. Your first step may be to at least consult with a competent bankruptcy attorney who can help you figure out your legal options.


Beyond Your Debt Problems A Future Awaits

Have debt problems taken over your life?  Is your mind always filled with thoughts about how to make enough money to pay your bills or what to do in order to get out of the financial mess you are in?  If you are currently in a financial crunch like a lot of people are in this economy, perhaps you feel that your debt problems have robbed you of the peace of mind that you used to have when things were better. But let me tell you that instead of focusing on and worrying about what you’ve lost, your time would be better spent looking to the future and planning your next move to turn your finances around.

Last week, I was counseling a couple who was facing foreclosure of their home.  After struggling for years and working long hours just to pay their mortgage, they came to the realization that that they could no longer afford their home. Sure, it was a beautiful home and they’ve invested a lot on improvements and upkeep but this is exactly what drove them to bankruptcy.  At first they took out a second mortgage for $100,000 for remodeling after they moved in.  Soon after that, they started using credit cards to purchase furniture, pay for additional improvements and at times even took cash advances just to pay their property taxes.  Facing foreclosure is, of course, never easy but by accepting the reality of their financial situation, they are now in a position to realign their expenditures to their income and rent a house that they can afford. After reviewing their income and monthly budget, they realized that they could actually rent a comparable house (same square footage and amenities) for about $1000 less than their current mortgage.  If they just saved this money for 2-3 years, they will actually have enough money to buy another home again.

When your outgo exceeds your monthly income, you have a sure recipe for financial disaster.  If you are in this situation, you need to sit down and spend some time figuring out a way to balance your budget. Instead of doing something to fix the situation, I see a lot of people living in denial.  Remaining idle will not make your financial problems go away.  It’s the same thing as ignoring bill collectors and leaving bills unopened, somehow imagining that problems will take care of themselves.  I’ve got news for you.  They won’t.  Ignoring the problem only aggravates the situation and this will only lead to more financial stress.

It’s OK to feel frustrated as long as you use the frustration productively by moving to action.  Remember that you didn’t get into your debt problems overnight so it may take some time to get out of the financial hole you’re in. Until you figure out the best way to deal with the problem, avoid doing things that will only make things worse. I am talking about continuing to charge on your credit cards when you’re already overextended, bouncing checks, failing to prioritize your needs, taking advice from people who really know nothing about your situation or making major purchases that will require additional borrowing due to a lack of funds.

Facing debt problems can be one of the most difficult challenges in life. Maybe you’re in a dark financial tunnel and are still looking for the light at the end. Keep in mind that no problem lasts forever.

If you need help in figuring out all possible options in dealing with debt, we would be glad to help. For a free consultation, call Toll-Free 1-866-477-7772. We have offices in Glendale, Cerritos, West Covina and Valencia.

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Stop Debt Collector Harassment

Dealing with a debt collector can be one of life’s most stressful experiences. Harassing calls, threats, and use of obscene language can drive you to the edge. What’s worse, a collector may embarrass you by contacting your employer, family or neighbors. You may even be hounded to pay a debt that is not rightfully yours. Sure, collection agencies have a job to do. Even so, there are limits on how far a debt collector can go.

Bankruptcy will stop the bill collectors. Its Federal law and it is your right.  You will gain some much needed breathing room.  After you file, all bill collectors must now contact your attorney. It is illegal for bill collectors to engage in any collection efforts with you at this point. That means no more calls, no more letters, no more calls at work.

Once you file bankruptcy, the bill collectors will no longer be in control. YOU WILL.

Bill collectors are notorious for telling people that once they file bankruptcy, they will be ruined for life and that they will never be able to get credit, a car, or that they will never be able to buy a home. This is nothing but a lie. They know that causing people to feel fear and shame can force them to pay.  These are lies told to you because they know that once you find out what your rights are, they can no longer collect money from you.

So if you simply believe what they tell you without finding out for yourself what the truth is, you will continue to live your life in fear- and this is exactly what your creditors want you to do. They want you to live in a constant state of fear and trying to guess what they will do next.  They want you to continue being afraid of answering your phone and going to your mailbox.

Bankruptcy is nothing more than a financial recovery tool that you can use to relieve yourself from the stress and burdens of overwhelming debt. Unfortunately, there are just too many people who are not getting the help that they deserve under our legal system because they have not taken the time to find out the real truth about bankruptcy.

You don’t have to live in fear.  If you have creditors breathing down your neck and are worried about losing everything you’ve worked hard for, find out if bankruptcy can help you protect what you have. A bankruptcy filing may benefit you more than years of struggling  to make small monthly payments that often barely cover interest, never really reducing the true amount of your debts.  And if your credit is already tarnished due to late payments, collections, judgments, etc. on your credit report, filing bankruptcy can actually improve your credit in the long run.

If you live in the Los Angeles are, give me a call. I have offices in Glendale, Cerritos, West Covina and Valencia.   I offer free initial consultations. Call me to set up an appointment today.

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Are You Facing A Debt Crisis?

No one ever wants to get into debt but at some point in your life, you may face a debt crisis.  My definition of a “serious debt crisis” is where you can’t afford to make even the minimum payments on all your debts every month.  When this happens, I see a lot of people resort to borrowing even more. There is, however, no way you can borrow your way out of debt.

If your debts are huge but you are at least able to meet your monthly payment obligations, you may not be in a serious debt crisis but you may be in what’s called a “debt trap”, if most or all your monthly payments are just barely covering interest charges. It’s called a trap because that’s exactly what it is.  It means that you will be stuck in debt for the rest of your life with no way out. It’s not a place that you want to be but sadly, it’s a reality for a lot of people who have bitten off more than they could chew.

How you got to where you are doesn’t really matter. What matters more is where you go from here.  Your debt crisis may be self-caused or it could have been the result of circumstances beyond your control.  Whatever the case may be, you need help and you need it fast.  Yet oftentimes, options can be confusing so a lot of people end up doing nothing.  This makes things even worse.  Don’t let this happen to you.

Generally, I find that most people find it very uncomfortable to talk about their finances so they tend to deal with their problems on their own. Having debts does not make you a bad person. Things happen. Most people do their best with the resources that they have but sometimes, it’s simply not enough.

If you are facing a serious debt crisis, don’t panic. Like most problems in life, what you are going through is most likely temporary and will soon pass.  No financial problem is beyond help but it is important for you to find the right solution for your situation- the sooner, the better.

The first step is to consult with a competent bankruptcy attorney who will take the time to assess your situation and recommend possible options.   You have legal rights that can help you get your financial life back on track.

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