What is the debt-to-equity ratio? The debt-to-equity ratio represents the fraction of your income which is used solely to repay debts, loans or credit.
As a general rule, we recommend that you keep your debt ratio below 33 % of your income. Find out more about the usefulness of calculating the debt-to-equity ratio.
What is the purpose of calculating your debt ratio?
The purpose of calculating the gearing ratio is to know your repayment capacity lorsque vous faites une demande de prêt à votre institution financière. Que ce soit pour financer un investissement ou obtenir un crédit immobilier, votre institution financière fera le calcul de votre ratio d’endettement avant de vous accorder un prêt. Le taux d’endettement est établi en comparant votre revenu mensuel brut au montant de vos financial obligations mensuelles.
Watch out! Don't confuse your debt ratio calculation with the very notion of debt. For example, if two households have the same amount of debt, this does not mean that the result of the debt ratio calculation will be the same.
Si le foyer 1 possède un indebtedness de 300 $/mois et un revenu de 1000 $/mois, le taux différera du foyer 2 qui possède un endettement de 300 $/mois, mais un revenu de 2000 $/mois. L’impact des dettes dans le foyer 1 est plus élevé que dans le foyer 2, le calcul du ratio d’endettement sera donc différent, même si la dette est la même.
Nevertheless, calculating your debt ratio gives you a good idea of your current financial situation.
What if my debt-to-equity calculation is too high?
A good debt-to-equity ratio is generally below 30 %. For financial institutions that grant loans, a ratio of 30 to 36 % is also well regarded. However, when your debt-to-income ratio calculation reveals a ratio in excess of 40 %, your loan application may be in jeopardy.
What's more, if your debt ratio is over 50 %If you're not able to pay your debts, there's a good chance you won't be able to pay for certain expenses that aren't included in the debt ratio calculation, such as food, personal expenses (other than those charged to your credit cards), transportation and so on.
In this case, we strongly recommend that you call in the services of a financial turnaround consultant. Le main role of an advisor in turnaround is to help individuals and companies get out of debt.
Some people experience temporary financial problems, others longer-term ones. But whatever the context, it's important to diagnose weak points of your financial situation to begin addressing it. With the help of an experienced financial advisor, you can regain control of your finances and regain your financial stability.
If you have any questions about calculating your debt-to-equity ratio, please contact us. And don't hesitate to make an appointment for a meeting. free and confidential at one of our offices in Montreal, Pointe-Claire, Laval or Longueuil. We look forward to welcoming you and answering any questions you may have.
