What Is Debt Rate (Dr)?
Debt Rate (Dr) is the percentage of a client’s annual gross income being allocated toward required debt payments.
Debts include payments toward:
- Personal real estate (primary mortgage, HELOC, etc.)
- Business debt (acquisition, equipment, etc.)
- Commercial real estate (condo, rentals, etc.)
- Student loans
- Other (auto loan, personal loan, other depreciating asset loans, etc.)
Example: if you’re spending $3,000/month on mortgage payments and $500/mo on student loan payments, and your household is earning $200,000 in annual income, your Dr is 21%
How Is Debt Rate (Dr) Calculated?
Why Is Debt rate (Dr) Important?
Overall debt levels have risen substantially over the past 30 years. Most notably, younger generations are in a fairly unprecedented economic period. Student loan and total debt-to-income ratios are very high, especially for those with more than a bachelor’s degree or those who attend private schools. It’s not uncommon to see a graduate with student loans over four times their expected annual income.
While managing debt levels has always been a component of overall financial health, it is likely to be a more frequent part of ‘the conversation’ today.
Tracking Debt Rate allows you to continuously monitor how much of your clients’ income is going toward debt payments. It helps you assess how their debt rate changes over time to identify patterns, to make smarter decisions about financing, and to help clients av