Financial Literacy for Everyone
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Financial Fortune Teller

Get a sneak peek into your financial future to see how well you are saving and planning for retirement.


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You’ve just landed a job. Congratulations! What now?



Debt Load

Are you out of your debt comfort zone? Does it seem as though you are paying too much to bill collectors and not enough for savings and the things you enjoy in life? If so, it is a good idea to figure out just how much debt you have and compare that to how much you earn. This will give you clear understanding of your financial health.

Debt Load
The first step is to calculate your debt load. This is the sum total of all the money you owe, including:

  • Mortgage
  • Student loans
  • Credit cards
  • Even loans from friends and family

Debt/Income Ratio
Once you have your debt load figured out, you will want to know just how big of a burden it is. You can do this the way banks and creditors do, by calculating your debt/income ratio – the amount you owe compared to the amount you earn. It is easy:

  1. Calculate all your monthly debt payments – including credit cards, mortgage and child support. (If you do not have fixed monthly payments, you can estimate your monthly payments at 4 percent of the total amount you owe.)
  2. Take your gross annual wages and divide them by 12. That is your monthly income.
  3. Take your monthly payments total and divide it by your monthly income.
  4. Move the decimal point two digits to the right to make it a percentage. That is your debt/income ratio.

Here is an example. Let's say your monthly income is HK$2,000 and your monthly payments on your debt load totals HK$500. If you divide 500 by 2,000 you get 0.25. Move the decimal point two places to the right and you get 25% as your debt/income ratio.

How much is too much?
Only you can know for sure how much debt is too much. If you are feeling a financial squeeze every month because of credit card bills, you do not need anyone to tell you that you are out of your debt comfort zone – you know.

But as a general rule of thumb, a debt/income ratio of 10% or less is outstanding. If it is between 10 and 20%, your credit is good.

But once you hit 20% or above, it is time to take a serious look at your debt load. Creditors will be less likely to give a loan to someone with such a high debt/income ratio, and those that do will probably charge higher interest.

Worse, if you have a debt/income ratio above 20%, chances are you will feel a strain on your budget.