WHAT IS A DEBT LOAD?

Debt load is described as the aggregate amount of unsettled debt owned by a private individual or business entity. This is very important in measuring financial stability. It is one of the primary considerations used by lenders to appraise the risks in granting loans to applicants. While the term implies a heavy burden, debt load does not have to be difficult to manage in order to exist. Individuals often carry a small but manageable debt load.

This article deals with an explanation of debt load as well as debt consolidation loans and how to qualify for this loan.

What are the essential things to know about a debt load?

Creditors look at the debt or income ratio. They compare the income you earn with your debts to determine if you have an appropriate amount of debt. The debt to income ratio is computed monthly. It reveals how good or bad your financial situation is.
Debt load is the sum total of all the money you owe on the following:
• Mortgage
• Student Loans
• Credit Cards
• Other loans
Once you have your debt load figured out, it is important to find out the extent of the burden. You can establish the ratio the way banks and creditors do. Calculate your debt/income ratio using the points below:
• Calculate all your monthly non-housing debt payments - including credit cards and child support. (If you don't have fixed monthly payments, you can estimate your monthly payments at 4 percent of the total amount you owe.)
• Take your gross annual wages and divide them by 12. That's your monthly income. If you don't have fixed monthly payments on revolving debts such as credit cards, you can estimate your monthly payments at 4% of the total amount you owe.
• Take your monthly payments total and divide it by your monthly income.
• It is usually expressed as a percentage, so move the decimal point two places to the right. That's your debt/income ratio.

What is a debt consolidation loan?

A Debt Consolidation loan is a personal loan that allows consumers to merge many debts into one. If you have three credit cards, you may be able to eliminate your credit card debt by obtaining a Debt Consolidation loan to pay off the credit cards. This means that you only have one payment each month instead of three.
The moneyproblems.com outlines the advantages of debt consolidation and refinance loans are the following:
• Your Debt Consolidation loan may have a lower interest rate than the rate you are paying on credit cards. Te loan should reduce your interest payments and help eliminate your credit card debt, eventually.
• With the lower interest rates and extended terms, a debt consolidation and refinance loan may offer, you may be able to reduce your total monthly payments.
• You replace many payments each month with only one payment. This should make your monthly household budgeting easier.
• The loan may have a lower interest rate than the rate you are paying on credit cards. It should reduce your interest payments and help eliminate your credit card debt eventually.
• With the lower interest rates and/or extended terms a debt consolidation and refinance loan may offer, you may be able to reduce your total monthly payments.
• You replace many payments each month with only one payment, which should make your monthly household budgeting easier.

How does one qualify for a Debt Consolidation loan?

You need to meet the following criteria to qualify for a Debt Consolidation loan:

• The bank will require a copy of your monthly budget to determine if you can meet your loan payments.
• You must be working, or have some other source of income allowing you to repay the loan. Banks calculate your ability to service a debt based on your income, so bring with you your most recent pay stubs, and last year's tax return, to the bank or lender when you apply for a debt consolidation loan.
• To satisfy prerequisites set up by the lending institution for debt consolidation and refinance loans, you may need a co-signor or collateral (such as a car or a house).

The next step

Now that you are fully aware about the ins and outs of debt load as well as debt consolidation, the next step is to take care in incurring unnecessary debts. It pays to think ahead to avoid damaging your credit reputation.

References

wisegeek.com
practicalmoneyskills.ca
moneyproblems.com
moneyproblems.ca