Do You Live Beyond Your Means?
That's a loaded question, and a tricky one, too, because there are many opinions regarding exactly what “your means” are. When the question is being asked by a lender considering granting you a mortgage, lease, or credit card, he or she will answer it at least partially by calculating your debt-to-income ratio.
Basically, this calculation tells a lender how much money you'll have left to pay his or her loan after you've paid for everything you're already committed to. It would be impossible to catalog here all of the methods lenders use for determining your debt-to-income ratio: The very definition of what constitutes income and debt varies from lender to lender.
For the purpose of organizing your finances, these ...
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