Personal finance tips

Are you in control of your finances?

The question may seem trivial, but we should never trust our impressions. Some may think that because they had no late payments, everything is fine. And when the bank refuses their loan application, they are bewildered. To find out how your file looks from the banker’s point of view, the best way is to calculate your debt level using a tool called the debt ratio.  With basic information on hand, a few clicks will give you your result.

Here is the information you will need to do the calculation:

  • Gross salary
  • Other income (child support payments, pension, family allowances, etc.)
  • Housing costs (rent, mortgage, taxes, heating costs)
  • Card and line of credit balances
  • Monthly payment on your car loan and other personal (or student) loans

Advantages of using this tool

It is a tool that all financial institutions use to measure your level of debt when applying for a loan to determine if you can afford to take on that new payment. It is a simple mathematical calculation that requires very little information. If you do this exercise every year, it will allow you to see of your debt level is increasing or decreasing year after year.

Limitations of this tool

It does not consider your family situation or your consumption habits.  A single person who earns $100,000 does not have the same financial obligations as a family of 2 children and 2 parents who each earn $50,000.  Also, it does not consider your spending habits such as travel or higher than average expenses for transportation, food, etc.  That being said, it is a very good way to assess your financial situation objectively.

How to interpret the results?

30% and less Excellent
31% to 36% Good
37% to 40% At risk
40% or more Problematic


If your score is 40% or more, unless there are special circumstances to explain this, the institution may refuse the loan or require a co-signor or guarantee.  However, such a result doesn’t necessarily mean that you need to file a bankruptcy or proposal. But it should raise a flag and push you to act quickly to reduce your level of debt. Otherwise, in the short term, if you were to require a loan for a personal project or an emergency, you may not be able to get it. In the medium and long-term, your debts will continue to drain your financial resources and probably become worst with time.

If, on the contrary, your result is good, so much the better! However, be sure to do this test at least once a year to ensure that your financial situation remains enviable. The level of debt tends to vary a lot over time so beware!

If you have any questions about this tool, how to use it or how to reduce your debts, feel free to contact our personal finance experts or book an appointment. It’s free, confidential and without obligation.