Understanding Debt to Income Ratio
Lets look at how to calculate the Debt to Income Ratio, why its important to have a low ratio.
First, get all your monthly debt payments. Write them all down the monthly principle amount and the interest in seperate columns. Next add up your pay checks for one month.
To calculate your debt to income ratio divide the total monthly debt payments by your total monthly income.
Example: Total monthly debt payments = 2000.00 Total before tax income is 5000.00
2000 / 5000 = 40% debt to income ratio.
Another example is 1500.00 total debt payments with a 7000.00 total monthly income
1500.00/7000.00 = 21% debt to income ratio.
Why is debt to income ratio so important? Well for one, the higher your debt to income ratio is the hard it is to get a loan if needed. Also with many lines of credits open that could increase the debt to income ratio, this could lead to a lower credit score. Also higher interest on new debt.
A low credit score brings me to a quick point to make about the credit score. A lower credit score will hurt the interest rate that you maybe offered. I know it is one viscous circle this finance stuff! I will do my best to try and explain how to improve your debt to income ratio and improve your credit score.
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To improve your debt to income ratio you need to pay down debt, there is no easier way to put it. The Rapid Debt Reducer PC debt software will help you to organize and eliminate debt as quickly as possible.
The second thing to do is to call the credit companies and tell them to lower your credit limits if you are well below them. Now once the credit cards and other debts start to get paid off, you want to keep a few of them open, normally the ones with the best rate and that you had the longest. All the others should be closed as they are paid off. This is going to greatly improve your debt to income ratio and your credit score. The glory of this is that it cost you nothing extra each month to do this.
Use our system to transform debt to wealth and live the life you deserve get out of debt. The Debt Reducer Software was designed to do this for you and show you how much money will be saved instead of debt consolidation.
SoLongBills.com is a key resource in providing up to date financial resources to eliminating debt and living life better
Debt consolidation may reduce your debt to income ratio but it will keep you in debt longer. Short term relief for long term pain. It's your choice. Avoid debt consolidation at all cost until you have reviewed my method of reducing debt!