Debt: the income outcome

“If your asset base is growing or let's say you've been a particularly shrewd investor in the stock market and we've gone through a particularly good time, then the debt to income ratio doesn't take into account what kind of assets you have,” he says, noting that one can tap into assets to help pay off debt.

One way or another, your DTI is generally the first thing that jumps out to potential lenders and creditors when they’re assessing the risk of taking you on as a client and the subsequent interest rates you’ll receive.

But they’re going deeper and looking closely at gross debt service ratio (GDS) and total service debt ratio. Again, the lower the number, the better off one is.

“It really brings it down to what you're spending on a monthly basis versus what you have coming in and the question becomes, ‘are you going to be able to afford this debt payment on a regular basis?’ and ‘what kind of risk is associated with that so you don't have to sell any assets?’” suggests Schwartz.

At Consolidated Credit Counseling Services of Canada (consolidatedcredit.ca), they recommend calculating your DTI on a regular basis as a way to detect early warning signs and they’ve got a handy c a l c u l a t o r (consolidatedcredit.ca/debt-solutions/debt-to-income-calculator/) that will churn out a percentage indicator from the budget figures you input.

If it comes up 36 per cent or less, you’re in good shape. If it falls between 36 and 50, it’s time to make some moves like channeling any extra cash toward debt and maybe even consider a debt management program. Anything above 50 is an indicator that your financial house is likely not in order and that it’s well past time to get some help.

If you’re not sure what moves to make and aren’t ready to incur the added expense of a contracting the services of a financial advisor, Schwartz encourages you reach out to his organization to speak with a credit counsellor free of charge to get a better understanding on your situation and the moves you can make to improve it.

At this time of year, with fresh debt on the way, the time to act is now.

“The key message there is don't wait, reach out and get help if you're confused, or at least look for resources that might be available to help you through.”

kenn.oliver@thetelegram.com Twitter: kennoliver79