You’ve always heard the term “debt to income ratio“, but perhaps you were never really clear on exactly what “debt to income ratio” means. To put it simply, a debt-to-income ratio equates to the percentage of one’s monthly gross income that is required for paying debts.
In addition, a debt to income ratio (sometimes abbreviated DTI) includes more than debt alone, but can also include certain expenses that can offset the amount available for paying off debts. For example, if you owe $700 a month in debt (a very low number I know) and you make $2000 a month, it would stand to reason that you have $2000 available to pay off your monthly debt. However, if you also have a monthly expense of $1200 for things like taxes, or various other fees…then you will have only $800 available for the $700 debt…making your debt to income ratio more like $800-$700.
In order to make certain that you’re able to pay off your debts on time, without going further into debt is to make sure that your debt to income ratio has a higher number of income than of debt. You don’t want to owe more money in debt, than you make in income. So when calculating your debt to income ratio, if you find that you actually owe more money than you make, you will either need to supplement your income, or you will need to consolidate your debt.
If you choose to consolidate your debt, you will still need to make sure that the interest rates and fees do not conflict with your debt to income ratio.
Blog
Twitter