What is my debt to income ratio
"What is my debt to income ratio?" This question is critical for anyone seeking a mortgage, a loan or financing of some kind – and for anyone who needs help with debt problems. Your debt to income ratio is simply the amount of debt payments you make each month divided by the amount of income you make each month.
What is my debt-to-income ratio:
- Add up total monthly debt payments.
- Divide them by gross monthly income.
- Note that the solution does not include taxes and other deductions that are typically subtracted later on.
Why is my debt to income ratio important?
Lenders use your debt to income ratio to determine whether you are a good credit risk. The thought is that consumers with a higher debt to income ratio may have more difficulty making monthly payments. In the mortgage industry, for example, you must have a debt to income ratio of 43% or less to apply for a "qualifying" mortgage.
What does my debt to income ratio have to do with my credit score?
Consumers often want to know "How does my debt to income ratio impact my credit rating?" Your debt to income ratio technically does not directly affect your credit score, as the credit agencies don't have record of your annual income. They do, however look at your debt to credit ratio -- the amount of debt you owe versus the amount of your credit limits – and take that into account when determining your credit score.
What can I do to improve my debt to income ratio?
To improve your debt to income ratio, you'll either need to decrease your debt or increase your income – the formula is that simple. Reducing debt, however, is decidedly not simple and many consumers have no idea where to start.
That's where the certified credit counselors at American Consumer Credit Counseling (ACCC) can help. We offer free credit counseling sessions where you can get answers to questions like "What is my debt to income ratio?", "How do I pay off debt?" and "What is loan consolidation?" Our highly trained credit counselors will help you understand all of your options for reducing debt and help you choose the strategy that best fits your financial goals and situation. When you're ready to say "I need help with my debt" and take first steps toward a debt-free life, ACCC can help.
Contact a certified credit counselor at ACCC to get answers to questions like "What is my debt to income ratio?", "how do I manage credit card debt more effectively?" and "Where can I get a debt consolidation loan?"