To Achieve A Lower Ratio

Category: Finance, Credit.

The debt to income ratio also known as DTIR is calculated using the payment you pay towards your total debt as a percentage of your total gross income.

How To Calculate Your DTIR: The ratio is expressed as a percentage, and can be calculated by dividing your monthly payments on your long term debts by your gross monthly income. Lenders use the ratio to determine how much you can borrow based on payments such as insurance, unsecured financing etc, property tax. As a working example, if your total debt payment stands at$ 1375 per month and your gross income is$ 3125 per month, to calculate your percentage, divide$ 1375 by$ 312This would give you a DTIR of 44% . This is broken down into two parts, 25% for home related expenses and 10% for all other expenses. According to mortgage news daily the recommended acceptable ratio is 35% . Keep A Low Debt To Income Ratio: Having a low DTIR is important as your ratio is used to determine your credit worthiness.

This could be problematic when it comes to purchasing major items such as your home. A lender would hesitate to lend to you if your ratio is high as it would indicate that you may have trouble paying your debts in the future. When your DTIR is high, you do not attract the lowest interest rates on credit cards and other credit facilities. Managing Your Credit Card Debt To Reduce Your DTIR: A major expense that contributes to your DTIR percentage is your credit card debt. This is because the lender sees you as a default risk and would charge you a higher rate to protect their business. If your ratio is near or above the acceptable limit, then you must take action to reduce it. Approach your credit card provider to get a reduced interest rate.

The following tips would therefore be useful to you. You would need to meet the lenders criteria such as having a good credit rating, prompt bill payments etc. in order to qualify, but it is worth looking into. Charging all your day to day purchases on your credit card pushes the balance and your minimum payment up. Use your credit card for necessary purchases only. This would adversely affect your DTIR as the debt payment increases, especially if your income remains the same. Stay within your limit at all times. Avoid extra charges, by paying your bill on time, every time.

To achieve a lower ratio. Debt reduction takes self control and sacrifice, but in the end, you would have, with reduced debts less monthly expenses and a lower debt to income ratio. You must work at reducing your monthly expenses. This would open up the market for you to access financing for the larger necessities in life at a much better interest rate than you would if your rating were not in good standing.

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