Debt Reduction – Taking a Closer Look at Your Debt to Income Ratio

One of the many reason why so many Americans file for bankruptcy is because of high debt. This country overall has one of the highest debt to income ratios.

Before any loan is approved, your DTI is calculated. This calculation is ran because if your DTI is too high, you run in the risk of not being able to pay your creditors each month and therefore you will be prevented from adding any other debt to your report; a person with a high DTI is a high risk consumer.

Getting a loan approved involves having the lender calculate your debt to income ratio to show how much risk you are as a consumer. If you DTI is higher than the norm, this shows the company that you are high risk and may run into the problem of not being able to pay the creditors back in time.

You want to first calculate what your monthly income is; this could be a variety of things ranging from your monthly wages to alimony and child support.

Example:

Your Monthly Income = $4,000
Fixed Monthly Expenses = $800

Lastly, take the monthly expenses and divide it by the income and you will be coming up with your DTI.

For example:

Monthly Income = $4500

Fixed Monthly Expenses = $1700

DTI = 58%

This debt to income ratio is close to being on the borderline of being too high. It would be difficult to gain additional financing.

Taking a look at where you stand in reference to your debt an income is the first step in being able to do any type of debt reduction method.

Want to find out more about Smart Debt Repair, then visit Lisa Max’s site on how to look out for debt consolidation scams and various debt repair tips.

This entry was posted on Sunday, January 3rd, 2010 at 12:38 pm and is filed under Credit Repair. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.