How much credit can you afford?

How much credit can you afford?

How much debt can you handle?

To determine how much credit you can take on, you should compare how much you owe (debt) with how much you earn (income). This is called your debt-to-income* ratio. Your debt can include monthly payments for things such as auto and home loans, credit cards or installment payment plans to name a few.

Here's an example:

If your monthly debt is: P8,000

And your monthly net take-home-pay is: P32,000

Your debt-to-income ratio will be: P8,000 / P32,000 = 25%

Your debt-to-income ratio is presented as a percentage. In the example above, your debt-to-income ratio is 25%.

Generally, a debt-to-income ratio of over 40% is a sign that you may have too much debt. A high debt-to-income ratio means you may be denied further credit, or you may have to pay a higher interest rate if you take on more credit.

*Income refers to your net take-home pay (or your earnings minus takes and other deductions).

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