Beyond the Repayment Calculator: What You Need to Know about Debt

Remarkably, 80 percent of Americans are carrying around a loan balance, according to Pew Trusts. Of those carrying debt, particularly those with student debt, about 7 million (17 percent) are in default, meaning they haven’t sent in a payment in an entire year, according to The Wall Street Journal.

Chances are you’re one of the millions suffering from a large amount of student debt. Fortunately, there are tools as your disposal. From using a repayment calculator to looking for warning signs, you can find ways to manage your loans.

No Debt About It

First, get smart about your situation. Sit down and record exactly how much, and to whom, you owe. Include a snapshot of how much you earn and spend each month so you can see where you might find wiggle room.

Next, determine your debt-to-income ratio. To find this number, first add up your monthly debt payments. Then divide that amount by your monthly income. Use your gross income—the total before taxes and deductions are subracted—rather than your net income. Your debt-to-income ratio should be at or below 10 percent without including a mortgage, according to the Department of Labor. If you include a mortgage, that ratio can rise to 36 percent and still be healthy.

You can use an online repayment calculator to help you determine how long it will take you to pay off your debt, either when you’re first starting to pay back or if you considering different repayment options.

Avoid Pitfalls

It’s important to determine if you have a problem with debt. The Department of Labor lists red flags to help you identify trouble early on. For example, are you using a new loan to make payments on other loans? Other pitfalls to consider include fielding calls from creditors, maxing out limits on credit cards, and paying only the minimum amount due on bills.

If these things are happening in your life, it’s a signal to step up your efforts. If you don’t take these flags seriously, they could compound, making it harder to dig yourself out.

Going Old School

School debt tends to be in a category of its own. It’s a “good debt” that often goes bad, as described by the U.S. Consumer Finance Protection Bureau. It’s also unique in the way you can stay on top of it. The Department of Education has a number of student debt resources, including payment plans, advice, a repayment calculator, and even loan forgiveness information.

If getting completely out of student debt seems overwhelming to you, focus on achieving a healthy debt ratio first. Once you do, you’ll be able to shift your focus from the past to the future. People commonly assume debt is bad, but that’s not always true. As with many good things in life, debt is a tool that is often misused. The trick is to stay on top of your loans so they work for you, not against you.