Household Debt Service and Financial Obligations Ratios as of 2nd Quarter 2023

 

Household Debt Service and Financial Obligations Ratios

Household debt service and financial obligations ratios are two important measures of a household's financial health. They can be used to assess a household's ability to meet its debt obligations and to cover its monthly expenses.

Household Debt Service Ratio (DSR)

The household debt service ratio (DSR) is the ratio of total required monthly debt payments to total monthly disposable income. DSR includes payments on mortgages, credit cards, auto loans, student loans, and other types of debt.

To calculate DSR, add up all of your monthly debt payments, including interest and principal. Then, divide this number by your monthly disposable income. This is the amount of money you have left over to cover your living expenses after taxes have been paid.

A DSR of 36% or lower is generally considered to be healthy. A DSR above 36% indicates that you may be carrying too much debt and may be at risk of financial hardship.

Financial Obligations Ratio (FOR)

The financial obligations ratio (FOR) is a broader measure of a household's financial obligations than the DSR. FOR includes all of the same types of debt as DSR, but it also includes rent payments, property tax payments, and homeowner's insurance payments.

To calculate FOR, add up all of your monthly debt payments, including interest and principal, as well as your rent, property tax, and homeowner's insurance payments. Then, divide this number by your monthly disposable income.

A FOR of 43% or lower is generally considered to be healthy. A FOR above 43% indicates that you may be carrying too many financial obligations and may be at risk of financial hardship.

How to Improve Your Household Debt Service and Financial Obligations Ratios

If your DSR or FOR is too high, there are a few things you can do to improve it:

• Pay down your debt. The more debt you have, the higher your DSR or FOR will be. Make a plan to pay down your debt as quickly as possible.
• Increase your income. If you can earn more money, it will help to offset your debt payments and lower your DSR or FOR.
• Reduce your expenses. Take a close look at your budget and see where you can cut back on spending. This will free up more money to put towards your debt payments.