Definition
A measure of your total debt compared to your total assets, used to assess financial health and your ability to manage debt.
What to consider
- Use this ratio to see how much debt you carry relative to your assets.
- A lower ratio suggests a healthier financial position.
- Monitor it to gauge improvements as you reduce debt.
Real world scenarios
- Caleb computes all his outstanding car loan, mortgage, and student debt against total assets, discovering he’s more leveraged than he realized.
- Lowering the total debt ratio becomes Tasha’s goal before she applies for another loan. She pays off smaller balances first.
- By reevaluating monthly debt obligations, Dominic systematically decreases his ratio, improving creditworthiness and overall security.
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