by Jacques Poujade
The DTI (debt-to-income) ratio is a figure that indicates how much debt you have in relation to your income. A lower DTI is considered ideal because it is an indication that you earn more than you owe.
A high DTI, on the other hand, particularly figures that go over 43%, requires a serious review of your finances. Learn how to lower your DTI with these three key steps:
Reconsider Your Spending Habits
By making significant cuts in your daily expenses, you can easily lower your DTI and put more money in your savings and debt-repayment funds. Try to monitor your spending habits each month and write them down to keep track of what you buy. Minimize unnecessary expenses or avoid them completely. Focus only on what you truly need and not on what you can do without. By the end of just one month, you will be pleasantly surprised at how much money you can save.
Supplement Your Income
Increasing your income is the other way to lower your DTI realistically. If you still cannot seem to get out of a debt rut even after revamping your expenses, consider finding ways to earn more. You could get another job, work on side projects, start a low-capital business, or earn money from a skill or hobby. Consider selling items you no longer need or use. You could also look into your current company to identify tasks and positions that match your skills and experience, and that offer more in terms of income. You could even consider working from home or taking odd jobs when and if necessary to bring in income that will help you lower your DTI and pay off your debt.
Pay Your Debt, Refinance, or Consolidate
If it is at all possible, consider paying off your debt in the quickest time possible. In case you come across a large amount of money for any reason or have saved up enough funds to fix your debt issue, pay off as much of it as you can. Even if you can only pay a chunk off of your loan, consider small tricks such as making payments before the scheduled date. Once your budget offers enough leeway, make extra payments to pay off your debts ahead of schedule.
Consider refinancing your loans once you qualify for lower interest rates and get better repayment terms. Many lenders are more than happy to work with you and may offer a better option. Look into consolidating your debt as well. This is a great way to reduce the amount of your monthly payments. Through consolidation, you will, in effect, pay only one debt and save money.
Your DTI is essentially the health indicator your finances. The better it looks, the more comfortable and stable you will become. If you are currently struggling with a high DTI, remember that there are steps you can take to manage your money and actively take charge of your financial life.
Jacques Poujade has over 30 years of experience in the financial and currently serves as the Managing Partner for LendPlus, an alternative mortgage lender. Learn more about Jacques and see what he’s up to by following him on Facebook: https://www.facebook.com/JacquesPoujade/