The total debt-servicing ratio (TDSR) is used by most banks to qualify their clients for loans and such. Most likely you wonder how they calculate it.
The first thing you need to take into account is your monthly income. Banks work with gross income. Business owners who are self employed tend to have a higher debt ratio. They can write off expenses that permanent employees cannot. Their gross, or declared, income is lower than those who aren’t self-employed.
If you benefit from multiple sources of income such as investments, interests, dividends, capital gains, rental incomes and what not, you might want to use your Notice of Assessment to demonstrate your total taxable income to a bank for getting a loan. You divide this by twelve to figure out its contribution to your monthly income. If you get paid every week, multiply it by 52 then divide by twelve to determine your monthly income. This will be more accurate than multiplying your pay stub by four (and somewhat higher as well).
Next, in order to determine a ratio, you need to calculate your debts. Financial institutions are only interested in your financial obligations: rents, mortgages, loans, lines of credit, alimonies, car leases and credit cards. You don’t count your bills—your telephone bill, cell phone, electricity or any other type of bill as part of your debts.
Your rent will be calculated even if you live with your parents and they don’t charge you. Depending where you live, the area minimum could be something like $500 or $1000 a month. If you own property, full mortgage payment plus property taxes are factored in as debt. Personal loans, car leases and alimonies are taken at their full monthly payment. When considering lines of credit and credit cards, most institutions will calculate based on 3 percent of the total balance you carry. Some banks might weigh your available limit if you have substantial credit card account, because you have the ability to make this money available to yourself any time you want.
One you complete those steps, you should know the following: your monthly income, and your spouse’s monthly income, and therefore your total household income.
You should also know your mortgage payment, you municipal and school taxes, fifty percent of your heating costs, your car leases or loan payments, three percent of your credit card balance, three percent of your available line of credit, and your total monthly payment. Add it up; is your total debt.
Once you know all that, you can calculate the TDSR simply by diving your outgo by your income. That’s all ‘ratio’ means, by the way—the relationship of one thing to another as part of a whole, or as a percentage.
The other day, I met a French student that just started his PHD in engineering (I didn’t mind asking what was his specific field of study as he would lost me at “hello” anyway 
). He had an important amount of money he received from his parents and wanted to purchase a property.
The problem is that he only had a student visa and no credit experience at all. Therefore, he couldn’t qualify for any mortgage program. No income, no green card, no credit: no mortgage!
So we establish a strategy to get him going and create a favourable credit experience. This strategy is good for students, new immigrants and possibly for people who have bad credit and want to start it over again.
Apply for a credit card
The very first move is to apply for a credit card. The purpose is not to sell you one but credit cards is the best way to build a credit history. Why? Simply because they have the most reliable reporting credit system. They will send updated information to credit reporting agency on a monthly basis.
Don’t try to go fancy with options, insurance and reward system. Simply pick up the most basic credit card ($500 limit, no options). It will be much easier to get approved for basic credit cards than for a platinum or gold credit card.
Use your card on a monthly basis
Pick up one expense type you will pay per credit card and use it every time you make a purchase. For example, if you choose to pay gas, your grocery or cable; always use your credit card to do it. Therefore, your credit card will be used but not maxed out and pay off every month since it’s already an expected expense showing on your credit card bill every month.
Do not ask for more credit for a while
Each time you request credit through an application (loan, car lease, line of credit, credit card, etc.), there is a hit on your credit score. Since you just start building your credit experience, you don’t want to have unnecessary hit dropping your credit score.
Wait
Your credit score will increase over time. If you wait about a year and you have used carefully your credit card during that period, you should get a good beacon score and start applying (moderately!) for more credit request such as increasing your credit limit, applying for a mortgage or a line of credit.
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Snowballing, or the debt snowball method, is a technique of debt management that is used to repay revolving credit like credit cards. It involves paying the debts with the smallest amount owed first using any available extra cash. It has been taught by many financial and wealth experts lately.
The basic steps of snowballing are as follows:
First, you list all your debts from smallest balance to largest. This is the most distinctive and counterintuitive aspect of the plan in that this order is determined by amount rather than interest. In other words you might be putting your highest interest account as your lowest priority.
Next you must pay the minimum on every debt on time every time.
On the smallest debt, you pay the minimum plus whatever extra you can afford until it is paid off. Some lenders may apply extra amounts toward the next payment whereas others will put it directly toward principal reduction. You may have to contact them to have them put it directly toward principal reduction.
Rinse and repeat until your debts are gone.
In theory, the amount toward the bigger debts will grow quickly as the smaller ones are paid off (you keep paying approximately the same every month in total). Thus the name—the amount you pay toward the larger debt grows like a snowball rolling down a hill, gathering more and more snow as it rolls along.
The theory is as much rooted in human psychology as it is in financial theory. By paying the smaller debts first, you see fewer bills, and this reinforces the psychological impression that you are making progress, which is very valuable in keeping you on the plan.
You won’t typically include your home mortgage in the debt snowball, that is typically paid according to a different plan in a later step. Many financial plans pay off those mortgages in a later step. This is for debts that are greater than half of one’s annual take home pay.
Whether one should make retirement contributions during the debt reduction process is a matter of dispute among proponents of this method, because some contend that contributions should be halted on the grounds that greater gains are made by paying debt, and others compromise by saying the contributions should be reduced to the minimum amount in order to get matching but not eliminated, but most experts say the halting should not last more than two years.
People with a lot of financial discipline may choose to pay off their higher interest rate debts first. Ultimately, this will cost less in interest payments than the smallest balance approach, but lacks the psychological advantage of showing perceptible progress in paying off your debt.
A pay day loan is, simply put, a small short term loan intended to cover your expenses until your next payday. These loans are sometimes called paycheck advance, payday advance, or cash advance. It can be a bit confusing to call it a cash advance, however, as typically, a cash advance is cash borrowed against a prearranged line of credit like a credit card. Legislation regulating pay day loans varies widely from country to country and within the United States varies widely from state to state.
Sometimes there are strict usury limits that limit how much interest any lender including those who provide pay day loans can collect. Some places outlaw pay day loans. Other places, on the other hand, hardly regulate pay day loans at all. Pay day loans are extremely short term so the difference between the expressed annual percentage rate and the effective interest rate can often be quite substantial. If you are considering a pay day loan, you must find out whether the interest is expressed as annual percentage rate (APR) or effective annual rate (EAR).
Pay day loans can be gotten from retail lending outlets. The borrower visits the lending outlet and takes out a small cash loan, and payment is due in full at the next paycheck. The term is typically two weeks. IN the US, finance charges on pay day loans are usually in the range of 15 to 30 percent of the amount for the two week period. This translates to an APR of 390 to 780 percent if it were a long term loan. Generally, the borrower will write a post dated check to the lender in the full amount of the loan plus interest. When the loan is due, the borrower returns to pay in person. If they don’t, the lender can put the post dated check through or electronically withdraw money from the borrower’s bank account to pay for the loan.
If the borrower doesn’t have the money to cover the check, the borrower may be looking at insufficient funds (NSF) fees from their bank, as well as the cost of the loan. The loan may incur additional fees and an increased interest rate as a result of failure to pay as well. If customers cannot pay, an extended payment plan may be available. Some states require extended payment plans by law.
Payday lenders require borrowers to bring pay stubs to show that they have a steady source of income. The borrower must also provide recent bank statements. Individual companies may have their own criteria, however.
Payday loans are often marketed online. These work by having the consumer fill out an online application with their information and a copy of a check and other info.
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