Staying out of debt can be hard nowadays! Especially when credit is easily available and it has become socially acceptable to carry a substantial debt load. How do you know when it’s time to rein in your spending? Can you take care of it yourself? Or do you need professional debt relief help? Nowadays, most people are navigating multiple streams of credit, either in order to equalize spending across a year when paychecks may not always match expenditures, or, in many cases, to make ends meet. Are you a ‘healthy’ debtor, always balancing out your spending with your earnings? Or are you leaning towards an unmanageable debt load?

Below you’ll find how you can calculate your debt load and identify if it’s too large to handle.

Find Your Debt-to-Income Ratio

For some, credit card debt represents a large portion of their overall debt,  for many others it’s those monthly loan payments — mortgage, car, and education costs– that make up the bulk of their debt. Finding the optimal balance between debt servicing and earnings is actually pretty easy. It simply requires that you pay attention to one key equation.

Debt-to-income ratio (DTI) is a method banks and lenders use to assess potential borrowers’ ability to pay back loans. DTI is also a great method to find out if you need debt relief help. Ticking the boxes for warning signs, such as only making minimum payments, having no savings, relying on credit cards to cover household expenses, and so on, still relies on intangibles, since none of those methods factor in what you earn. If you can figure out your DTI, you can calculate exactly how much of your income goes to debt servicing. Then, if you are falling behind, you can take steps to reduce your debt before interest accrues and your credit rating heads south. Use these metrics to get an accurate analysis before you assume anything about your credit situation.

How to Determine Your DTI

To determine your DTI, you can use an online DTI calculator, or calculate it yourself as follows:

First, add up your monthly payments on your credit cards, auto loans, student loans, and any other outstanding loans you may have. Next, combine that with your housing costs (rent, or monthly mortgage payment with interest charges). Don’t forget to include the monthly cost of property taxes and insurance, even if you only pay those annually. Then, tally your total (gross) income – your before-tax pay, along with any self-employment earnings, contracts, investments, rental income and any other income you may have. Divide your monthly spending by your gross income – then multiply that number by 100, and you have your DTI, expressed as a percentage.

For example: If you pay $800 per month in credit card debt, $400 per month for your car payment, and your housing expenses including insurance and mortgage are $2800 per month, then your monthly debt spending, also known as ‘debt commitment’, will be $4000. If your monthly income is $10,000, divide that into your debt commitment, for a DTI of 0.4, or 40 percent.

How Large of a DTI is Too Large?

Generally speaking, you want your DTI to be as close to zero as you can get it. If you are trying to secure a mortgage, you want your DTI to be around thirty percent (or less). A DTI over forty percent can be a red flag for lenders. Getting down to less than thirty-six percent (the preferred DTI rate of many banks) should be a goal for anyone who wants to manage debt responsibly.

Of all the indicators that you’re headed for disaster, the DTI is the most reliable. The best way to get back on the rails of good credit is the know your DTI, and work to lower it. Quarterly check-ups and a sensible budget can have you on the road to debt relief and a lower DTI.

If you’re looking for an easy solution to help you find your DTI, here’s a calculator from Zillow: http://www.zillow.com/mortgage-calculator/debt-to-income-calculator/