Three Calculations to Assess Your Debt Situation

Three Calculations to Assess Your Debt Situation

Evaluating Your Financial Health: Three Key Metrics

It’s an unsettling statistic: nearly half of all Canadians find themselves mere $200 away from insolvency at the end of the month, according to MNP’s quarterly Consumer Debt Index. Financial instability can render many vulnerable to unexpected incidents like a job loss, serious illness or even unforeseen household repairs.

However, acknowledging the existence of a problem marks the first step towards its solution. There are three critical calculations, or metrics, that can help you gauge your financial status and determine whether you need to seek professional advice from a Licensed Insolvency Trustee.

1. Understanding Your Total Debt Servicing Ratio (TDS)

The Total Debt Servicing ratio, often abbreviated as TDS, indicates the portion of your gross monthly income that is already pledged to existing debts. These debts may take many forms, such as credit cards, loans, and mortgages.

The thumb rule is to keep your TDS below 40 percent of your gross income. A higher TDS can lead to difficulties in managing payments and savings. Furthermore, lenders might hesitate to provide additional credit if your TDS exceeds 40 percent.

Calculating your TDS

To arrive at your TDS, you need to consider your gross income and the sum of all your monthly debt payments. The formula for calculating TDS is:

[ Gross (pre-tax) income ]
Sum of all monthly debt payments

2. Gross Debt Servicing Ratio (GDS)

The Gross Debt Servicing ratio (GDS) reflects the total amount of your gross monthly income that is committed to your housing costs. These costs can include mortgage payments, utilities, and property taxes.

If your GDS exceeds 32 percent, it might be difficult for you to secure a mortgage.

Calculating your GDS

The formula for calculating your GDS is:

[ Gross (pre-tax) income ]
Sum of all monthly housing costs

3. Assessing Your Net Worth

Your net worth represents the amount of money you would have left if you were to sell all your assets and pay off all your debts. Ideally, your net worth should be positive and should consistently rise over time.

Calculating your net worth

Net worth can be calculated using the following formula:

Assets – Liabilities

Probing Further

In addition to these calculations, you should ask yourself some key questions to gain a deeper understanding of your financial health:


  • Do I have a budget?
  • Am I using one form of credit to pay for another?
  • Am I making minimum payments on credit cards?
  • Am I using credit to pay for groceries and other essential items?
  • Am I borrowing money from friends or family?
  • Am I resorting to payday loan services?
  • Am I receiving collection calls or letters?
  • Am I consistently unsure of my financial situation?


If you identify with most of these scenarios, it might be time to consult with a Licensed Insolvency Trustee to explore your options and find a way out of your debt problems.

Take the first step towards resolving your debt situation by understanding these three key calculations. Financial stability might seem like a distant dream, but with careful planning and informed decisions, you can reclaim control of your finances.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.