2 Ways to improve your debt to income ratio
Debt to income ratio (DTI) is a very important personal finance indicator which shows the state of your financial health. This is calculated by dividing the debts that you owe by your income and then by taking the percentage of it. The lower the ratio, the better it is for you. Low debt to income ratio signifies that you do not spend much of your income in paying your debts. On the other hand, high DTI ratio implies that you spend more of your income to spend debts that you owe.
In case your debt to income ratio exceeds 50%, it means that you are spending at least half of your gross income in paying off your debts. Ideally, your debt to income ratio should be less than 36%. Majority of the banks and lenders take this 36% limit as the basic criteria to offer loans to you. However, this maximum limit of 36% DTI ratio implies that, if your income is $4000 per month, your monthly debt payment must not cross $4000*0.36=$1440 per month. With this simple formula, you can easily calculate your comfortable debt load.
Sometimes, it makes good sense to have a high DTI ratio. This is so because, a high debt to income ratio implies that you have high debt and as well as you are actively paying off those debts. But, if you have high DTI ratio but you are paying of minimum amount of debts, it implies that there are some problems. Anyways, a low debt to income ratio implies that your debts are under control and you must always strive to lower your DTI ratio. There arte two ways to improve or lower your de to income ratio. These are listed below.
Raise your income
One way to lower your debt to income ratio is to increase your income. In order to augment your monthly income, you can do a variety of things. You can request your employer for a salary hike. You can work over time or can engage in a part-time profession. Again, if you are skilled in a certain field, you can use your skill in your spare time to earn some extra money. If you can raise your income, your debt to income ratio is reduced.
Pay your debts
Another way to improve your DTI ratio is to pay off your debts. If you can bring down your debts, that gets reflected in lower DTI ratio.
You always need to keep it in mind that having more debts in your books, hurt your credit score negatively. So you must take serious steps to reduce your debts and to improve your debt to income ratio.
Author:
Nicolas Peterson is a contributing Financial Writer of debtincome. With her knowledge on debt income, how will you get free debt advice?personal loans related issues, he provides information on real estate, Mortgage, Debt Insurance ,Credit Personal loans, Tax Investment, Bankruptcy, Payday Loan, General Finance, Credit Repair ,Forex ,Stock Market, Frugality Law.
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