Credit Dad » dti http://www.creditdad.com Your Guide To Credit Fri, 16 Dec 2011 11:35:19 +0000 en hourly 1 http://wordpress.org/?v=3.2.1 The First Steps of Debt Reduction is Learning about Your Debt to Income Ratio http://www.creditdad.com/the-first-steps-of-debt-reduction-is-learning-about-your-debt-to-income-ratio/ http://www.creditdad.com/the-first-steps-of-debt-reduction-is-learning-about-your-debt-to-income-ratio/#comments Wed, 06 Jan 2010 19:31:19 +0000 Lisa Max http://www.creditdad.com/?p=1578 One of the main reasons why many Americans look to bankruptcy and other measures of debt reduction to clear their name from this debt is because statistically as a country we have a very high debt to income ratio; sometimes way over 50% per household. This ratio can prevent people from obtaining financing, establishing credit, and can also get you in a major bind with many of your own creditors. You can calculate this by taking the percentage of the debt you have versus how much income you bring home.

Before you can get a loan approved, your debt to income ratio must be calculated. If you DTI is too high, you are a risky borrower and may possibly have issues paying your creditors back.

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.

How is the DTI determined?

Basically it’s money that is brought into the household. If your income is inconsistent from month to month, then the lender is going to want to see the last six months of averaged standard income.

Debt is the next part of the equation. Debt does not include your utility bills but it will encompass outstanding balances on credit cards, loans, mortgage, child support, car payments, etc. If a debt will be paid off within three months, then do not include it.

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

For example:

Monthly Income = $3500

Fixed Monthly Expenses = $1700

DTI = 62%

This debt to income ratio is very poor and shows that expenses are so high that it would be very difficult to gain any additional credit or financing.

The first step of debt reduction is always taking a look at where you currently stand, and that is through obtaining your debt to income ratio.

Learn more about Smart Debt Repair. Stop by Lisa Max’s site where you can find out all about debt consolidation scams and various debt repair tips.

]]> http://www.creditdad.com/the-first-steps-of-debt-reduction-is-learning-about-your-debt-to-income-ratio/feed/ 0