How to calculate your total debt balance – Forbes Advisor


Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.

Find out if you qualify for debt relief

Free estimate without obligation

In the history of personal finance, debt is reliably viewed as a bad guy. It has been labeled by at least one finance guru as a “dirty four letter” word and says it is “out of control” and keeps consumers “in shackles,” among other epithets. Being debt free is often considered one of the most desirable traits a person can have, just a little short of financial nirvana.

As villainous and trapped as it may be, debt isn’t exactly a rarity or a small feature of the economic landscape. About 80% of consumers owe someone money for something, and 48% of low-income adults who lost their jobs or wages during the pandemic took on additional debt, according to data from the Pew Research Center .

And they owe a lot. Total household debt stood at just under $ 15 trillion in the second quarter of 2021, according to a report on household debt and credit from the Federal Reserve Bank of New York. This is an increase of $ 812 billion from what it was just 18 months earlier, at the end of 2019.

But debt is more than a burden. Without the ability to borrow money, consumers would have a hard time buying a home or paying for their college education, both of which are seen as generally sound financial measures. Without people to buy homes, the construction industry would face much lower demand for its products – bad news for construction workers, building material suppliers and other parts of this important industry. economic.

Overall, borrowing capacity is an important feature of the US economy and helps create and maintain healthy demand.

And the debt is not, at least according to some points of view, totally out of control. The value of outstanding student loans actually declined in the second quarter of 2021, according to figures from the Fed. Likewise, home equity loans are down slightly. And the overall balance owed on the country’s credit cards was lower than the previous year.

Still, while debt doesn’t necessarily have the same effect on your personal finances as Godzilla did in Tokyo, it’s important to keep an eye on it. Unless you are a multimillionaire, and sometimes even then, you will likely benefit from knowing your total debt.

Why calculate your total debt?

Knowing how much you owe is important in several ways. On the one hand, if you are applying for a mortgage, your chances of getting approved will depend to a large extent on factors related to the amount of your debt. Specifically, lenders take a close look at your debt-to-income ratio, which compares your income to your monthly debt payments, when deciding whether to sign a mortgage application.

Calculating your total debt is also important in managing your household budget. Payments on mortgages, auto loans, student loans, and credit card balances account for a significant portion of the total monthly outflows for many consumers. It is almost impossible to establish a workable budget unless you know how much you are paying each month and how long you will need to keep paying. In other words, your total debt.

Finally, if you want to achieve this debt-free nirvana, you will need a debt repayment plan. And whether you go for the Debt Avalanche Plan, Debt Snowball Plan, or some other method, it will require knowing the terms of all of your debts including current balance, interest rate, debt. duration, minimum payment, penalties, guarantees (if applicable) and more.

Challenges of finding total debt

Despite its importance, it’s not always easy to put your finger on what you owe. On the one hand, there is the possible innate and universal human tendency to forget to borrow money from someone, yet remember with perfect clarity every time someone borrows you.

Perhaps more importantly, there are many ways to borrow money, many places to get a loan, and many reasons to do so. Some debts that you owe may not even be recognized as debt. Here are some creditors that many consumers owe money to:

  • Banks
  • Credit unions
  • Retailers
  • Car dealers
  • Finance companies
  • Educational institutions
  • Hospitals and Doctors
  • Governments

Even utility companies can be considered lenders because you use the electricity, gas, water and other services they provide and only pay for them later. To repay debts, some consumers will borrow from their own pension plans, while investors may borrow from their brokerage firms to trade securities on margin.

Loans from friends and family are a notable absence from this list, which is based on government reports that do not follow these informal credit extensions, or IOUs. However, an IOU is a loan and should be taken into account when calculating your total debt amount.

There are also many types of debt. They understand:

Ultimately, you can borrow to buy just about anything, although federal regulators place some restrictions on investors who borrow on margin to buy securities. In order to make sense of your debt load, you have to find a way through all of this complexity and confusion to come up with a single number. Here’s how to do it.

How to know your total debt

One of the most useful things about credit reports is that yours contains a detailed statement of what you owe. So when you sit down to add up your debts, the first step is to request a copy of your credit report. In fact, you should request three copies, one from each of the major credit bureaus: Equifax, Experian, and TransUnion. You can request free copies of each at

Once you have the reports go through them and identify all of your debts and their current balances. To be even more confident that you have the right amounts, consider contacting the listed creditors to ask them how much you owe. This is especially important if there is a difference between what you think you owe and the balance shown on the credit report.

Now write down the amount of each loan balance, with possibly the creditor and the purpose of the loan, in a spreadsheet or a piece of regular lined notebook paper. Add them up.

Is this the total amount of your debt? May be. But you might want to keep checking. As you examine credit reports, you will probably notice that not all debts show up on everyone. So don’t assume that all of your debts are on these reports.

Some debts, like loans from friends or family members, will never show up on a credit report. Even some businesses do not report their debts to a credit bureau. So review your records. Look through your financial document files, check unopened mail, and do a deep scan to make sure you haven’t missed anything.

Once you’ve gone through credit reports, your own records, your creditors’ records – and perhaps your memories of noticing an IOU after losing a friendly poker hand or betting on the outcome of a loss. ‘a sports competition – add these amounts to your spreadsheet or notepad. The total of all these debts represents your total debt.

Track with apps

To get your debt under control in the future, you can harness technology. Entering debts into Quicken or other personal finance software can help you keep track of your total debt with just a few keystrokes.

Personal finance applications such as Mint and Personal Capital can help automate the collection of data on your debts by retrieving data from financial institutions. This can be a very simple and accurate way to keep balances and payments up to date.

Conclude your total debt

Depending on how much of that nearly $ 15 trillion in US consumer credit you owe personally, your personal debt amount may be an important number to know. This is especially true if you plan to apply for a loan, start following a budget, or make a plan to pay off debt.

If you start with the debts that show up on your credit reports and then add any other debts that you can identify, it can be a relatively quick and easy job. And it’s worth doing it. You don’t have to agree with the experts who argue that debt is a villainous enemy to realize that when it comes to the total amount of your debt, what you don’t know can hurt you. .

Find out if you qualify for debt relief

Free estimate without obligation

Frequently Asked Questions (FAQ)

How many types of debt are there?

Debt can be divided into two types: unsecured debt and secured debt. Beyond that, the main types include mortgages, student loans, auto loans, credit cards, and personal loans.

How does knowing my total debt help me manage my money?

Being aware of your total debt load is essential to developing a family budget that you can stick to over the long term. It is also, probably obviously, at the heart of any decision to take on more debt.

Source link


Leave A Reply