Whenever someone is interested in getting a new Credit Card or a mortgage, it’s always very important to take a look at your Debt to Income Ratio using this calculator. This ratio is not only used by financial institutions to see if you can handle your finances, but it’s also a very good indicator of how you’re doing with your finances.
How to use the Debt to Income Ratio Calculator
This calculator will give you an estimated Debt to income ratio based on the value you enter. DTI is calculated using the following formula:
- Your monthly Pre-Tax Income: Here you enter how much you earn, before taxes monthly. You can get this number by looking at your pay-stub
- Monthly debt payments: Here you enter your monthly debt payments such as your car payment, loan payments, credit card payments, etc.
Once all your info has been entered, the calculator will automatically calculate what your DTI is. You should always aim to keep your DTI ratio below 23% so you can have wiggle room for other expenses like food, savings, and utilities.
My debt to income ratio is high, now what?
First off, don’t panic. Having a high debt to income ratio means that your monthly debt payments are taking a big chunk of your income to pay them down. This doesn’t look good to lenders and makes it harder for you to get credit services like a mortgage or credit card.
To lower your debt to income ratio, you basically need to start paying off some debt. They are loads of methods out there That you can use to pay down your debt. What I recommend doing is paying off your smallest debt first, then attacking the next one.
Having a budget helps to allocate money efficiently and pay off your debts easily. Make sure to just pay the minimum on your other debts as you attack them smallest to biggest.
Don’t worry, it might seem like an impossible task, but anybody can do it. Even you 🙂
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