- Your net worth is the sum total of all your assets, minus the total of your liabilities.
- The ratio of your total debt to total assets is a helpful measurement in determining your financial health.
- You can use your net worth and debt ratio to calculate how quickly you can realistically pay off your debts.
Your net worth is a basic measurement of your financial health. You can measure it yourself by subtracting the total of all your liabilities (aka loans, debt) from the total of all your assets (such as investments, bank accounts, worth of a house or vehicle, etc). If your net worth is constantly increasing (by reduction of liabilities, increase of assets, or both), then that's a sign of great financial health. By measuring your net worth often, you can better analyze where your money is going and if it's actually contributing to your financial health. This information will help you improve your spending habits and adjust your budget accordingly, thus clearing the path for you to be debt-free faster.
The term "debt ratio" refers to the ratio of the total amount of one's debt to the total amount of assets. As you pay off your debts, your debt ratio goes down. A high debt ratio is an indicator of poor net worth. This is something to keep in mind as you create your financial plan and get out of debt as quickly as you can.
A debt projection summary includes the amount of debt you have remaining, your percentage of debt to assets (see "Debt Ratio" above), and the amount of time you can realistically pay off your current debt. All of this might take a while to calculate manually, so you might prefer to use this debt projection calculator instead. This calculator not only provides a very good estimate for the amount of time and interest your loan will cost you, but it also provides you with graphs so that you can visualize the impact a certain debt payoff plan will have on your financial health. You can go back and experiment with monthly payments and other variables so that you can find the best repayment plan for your situation. We recommend that you implement this information into your spending plan and save money wherever you can to pay off the debt as soon as you can.