Do You Have Good Debt – or Baaaaad Debt?

How much debt should you carry in order to have the BEST credit score Well, obviously, you don’t want to have more than you can pay, but seriously, there are other things you should look at too – like what KIND of debt do you have?  Is it “Good Debt” or “Bad Debt?”Good Debt is generally looked at as an Investment – a Car payment, a House Payment, that debt for items that should generally be considered an ASSET are in the Good Debt column.  BAD Debt is credit card debt, and the items we should probably be paying CASH for!How do you know if you have too much Bad Debt?  Here’s a formula!To calculate your bad debt simply add up the amount you spend each month on bad debt and divide it by your total monthly income.  Multiply that number by 100 – which will give you your Debt to Income Ratio.For example, let’s assume you make $3,000 a month. Let’s also assume you spend $300 on credit card payments and $450 on an auto loan. Your ratio calculation would be $750 / $3,000 = 0.25. Multiply that by 100 for a debt-income-ratio of 25%. In this example, you spend a quarter of your income on bad debt.When it comes to debt, whether good or bad, the lower the debt you have, the better. A bad debt ratio beyond 10% is too high and often is a sign that you are overloaded with debt. In this scenario, you would have too much bad debt.If you are considering a mortgage loan – please let Steve and Eleanor Thorne in Cary, NC – We’ll help you with qualifying!  919-649-5058