What Is Debt To Income Ratio? [And Why It Matters]

The sad fact is the average American is severely in debt. Our debt culture embraces debt and believes it is a necessary tool to live our lives. 

What Is Debt?

In the most simple terms, debt is anything that you owe. This could be a credit card payment, student loan payments, a mortgage payment, or a debt consolidation loan. 

What Is A Debt To Income Ratio?

If you are interested in purchasing a home, a car, or if you are looking to take out a loan for any other reason, your lender will scrutinize your debt to income ratio. To put it simply, your debt to income ratio is a calculation of your gross monthly income to the amount of recurring monthly debt that you have. 

How To Calculate Your Debt To Income Ratio

Debt To Income Formula (Total of your monthly debt payments) / (Gross monthly income) = (Answer) x 100 = Debt to Income ratio percentage.

What Is A Good Percentage Of Debt To Income Ratio?

Since your debt to income ratio can keep you from getting a loan with a reasonable interest rate, we need to examine how bad (or good!) your situation is before you apply for a loan. According to Investopedia, mortgage lenders use DTI in their calculations and believe the ideal debt to income ratio is 36% or lower and your mortgage loan should be no more than 28% of your total DTI. Some lenders like to see an even smaller amount. 

What Happens If My Debt To Income Ratio Is Too High?

If your debt to income ratio is too high, it is possible that you will not be able to get a car loan or mortgage. Lenders want to be able to see you can handle and responsibly repay your loans on time. 

What Is The Average Debt To Income Ratio In America?

Unfortunately, there is no solid data that shows the ability to uncover the average DTI ratio in America. We do know, however, that the median income in America is $61,372 while the average debt is $137,063. 

How Can I Lower My Debt To Income Ratio Quickly?

First and foremost, you need a monthly budget. You have to know how much money you are earning and how it compares to your spending

Swipe up now to read the full post!