To be financially healthy it is very important that you keep your debts to a level that you can afford.  Life, unfortunately, is not a straight line.  There will be moments when your financials are suffering – and you must make sure that when these moments occur you can manage your debts.

For your debt to be affordable it must not exceed 35% of your income. 

Is your debt affordable?

Technically your level of debt affordability is known as the ‘debt to income ratio’.  To determine your level of debt affordability you are to list all of your disposable income (that is your income after deducting the income tax and social security contributions payments) and all of your debts.  Examples are shown in the table below:

Disposable IncomeOutstanding Debt Payment
Wage/SalaryHome Loan
AllowanceCar Loan
OvertimePersonal Loan
PerformanceCredit Card
Fringe benefitHire Purchase

The following are not to be considered in determining your level of debt affordability

  • Living expenses, such as your grocery bills.
  • Utilities, such as water and electricity.
  • Monthly service bills, like your mobile, TV packages and internet.

Calculate your level of debt affordability on a monthly or income on a monthly basis.  To do so use this formula:

Monthly Disposable Income/Debt = (Annual Net Salary after deducting tax and social security contributions or Annual Debt) ÷ 12

If your level of debt affordability is:

  • 21% to 35%               You are exposed
  • 36% or higher            You are in trouble.

If your level of debt affordability is 36% or higher ĠEMMA recommends you take the following steps:

  1. Avoid taking on more debt.
  2. Make sure you first pay the debt on your essentials – the mortgage on your home – first.
  3. Thereafter make sure you pay the debt with the highest interest rate and Annual Percentage Rate (APR).
  4. See whether you can increase your income so that you can pay off more of your debt.