Debt-Load Ratio

Your debt load is the amount of debt that you carry on your shoulders. Whether that load is a burden or not depends on your debt-load or debt-to-income ratio. If, say, your debt payments total $1,000 a month and your income is $12,000 a month, the burden's probably light. If you have the same payments on a $1,500 income, that's not so good.

Debt-to-Income

To figure your debt-load ratio, add together your monthly debt payments: credit-card bills, car loans, housing expenses, payday loans, student loans and whatever else you have. Take your expenses and divide it by your total pretax income. A $4,000 a month income with $2,000 in debt payments is a .5 ratio or 50 percent. If your income fluctuates month-to-month, make the calculation based on your yearly income and yearly debt payments instead.

Financial Health

If your debt-load ratio is 36 percent or less, you're in good shape. Up to 42 percent, according to the U.S. News & World Report website, you're still not in danger, but you should definitely avoid adding to your debts. Above 42 percent, you're risking financial disaster, particularly if you lose your job or have a major added expense. At 50 percent -- in other words, when half your income is going to pay debts -- you should head for debt counseling.

Lenders

When you're looking for credit, a high debt-load ratio can scare lenders away, just like a low credit score. Mortgage lenders, for example, want to see that your non-housing debt load is under 28 percent; when you add on a mortgage, the total should be 36 percent or less. If your ratio creeps above that, landing a mortgage requires paying significantly higher interest. A low ratio, on the other hand, can compensate for other factors, such as a so-so credit history.

Better Ratios

If you'd prefer a lower debt-load ratio than the one you've got, stop putting anything on your credit cards that you can't pay off immediately. Find ways to tighten your budget and squeeze out extra money to pay your debts down. If you're looking ahead to buying a house or your next car, lowering your ratio gives you more cash to put down, as well as earning a better interest rate.

About the Author

Author of two film reference books, "Cyborgs, Santa Claus and Satan" and "The Wizard of Oz Catalog." Published in Air & Space, Backpacker, Newsweek, The Writer, and multiple trade journals (can fax samples if requested, don't have them available digitally)