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There are many factors that can affect your ability to secure a loan, and one of the biggest is your debt to income ratio. Those that head out to purchase a new car or even more importantly, to apply for a mortgage on a home will have their options limited by their debt to income ratio. This number is important to lenders who are considering giving you credit because it gives them a good picture of your debt load and your ability to pay down a future loan.
What Is Your Debt To Income Ratio?
The first thing you need to understand it just what this number is. To calculate debt to income ratio, you need to do some simple math:
When you do not include your mortgage payment (if you have one) you can get an idea of what the lender will see when determining if you qualify for a home loan. When you add in your monthly mortgage payment, you are seeing the complete picture of how much you are spending and how much you are bringing in.
Where Do I Fit In?
Where do you stand? Once you calculate debt to income ratio, then you can see what a risk you are to the lenders. Here is some help without your mortgage included.
How Does It Affect Me?
If you have a higher debt to income ratio, you are less likely to be able to secure the interest rate that you want. That means it is harder for you to get loans for a car or for a home. Obviously, the lower the better when it comes to your debt to income ratio.
The Bottom Line
Does that mean that you have to work harder? Not necessarily. What you need to do is work on lowering your overall debt load. It's all the more important to consider your options to reduce your debt load.
Debt settlement can greatly reduce your debt load and increase your debt to income ratio tremendously. People who have used debt settlement have often been able to secure mortgages and other loans at a much better rate than without it. Consider hiring a debt settlement company to take care of the details and get you on your way to a better debt to income ratio.
If you can not lower your debt load, consider adding additional income, such as a part time job. This number is very important to your overall credit worth so working on improving it is necessary to maintain your good credit standing and well worth the time spent.
Mvelopes Personal is an online budgeting system that makes it easy to create an effective personal budget and track every aspect of your spending as it happens. It will help you always know exactly how much you have left to spend, instantly know the impact of every spending decision, effectively manage credit card spending, and quickly create an easy to use household budgeting plan. Click here to learn more
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Did You Know... |
49% of adults, and 66% of US high school students got F's on a national test on their knowledge of basic economic principles.
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Food for Thought... |
"I'd rather go to bed without supper than rise in debt."
-Ben Franklin.
