> It's a rule of thumb that your total debt should not exceed 1/3 of your income.
Unless tax deductions work very different in the US than they do in Denmark, that is pretty bad advice.
Here, sitting on a 60% mortgage loan that is many times higher than your annual income is genuinely a good idea for most people because of tax law. It’s not until you have assets that are worth more than your house that it becomes a good idea to pay off the entire loan.
Meanwhile having even a small “quickloan” that is 0.1% of your annual income is a very stupid idea.
I mean, if you don’t know finance at all then maybe it’s a good rule of thumb as you’ll never bury yourself in debt, but loans aren’t just loans.
I've never heard total debt should be 1/3 of income. Having a mortgage completely blows that up. Nevermind student loans, a car, or getting a credit card.
I've heard that monthly housing shouldn't be more than 1/3 monthly take home. Is that what you're thinking?
> I've never heard total debt should be 1/3 of income. Having a mortgage completely blows that up. Nevermind student loans, a car, or getting a credit card.
I think you mean 3x of your income, not 1/3 of your income. If it was 1/3, then someone making 100k would only be able to get a mortgage loan of 33k...
Or are you saying payments on debt (mortgage payments)?
When I've heard this before it was about mortgage payments. The general idea being the money you make is broken up into thirds with the gov getting a third in taxes, the mortgage payment getting a third, and living/saving from the final third.
It has no economic foundations whatsoever.
Yet, banking institutions use(d?) this rule to reject whatever application they were not comfortable with.