What is a debt-to-income ratio and why is it important?

What is a debt-to-income ratio and why is it important?

A debt-to-income ratio (DTI) measures your monthly debt payments against your monthly income. It's important because lenders use it to assess your ability to manage monthly payments and repay debts.

How do I calculate my debt-to-income ratio?

To calculate your DTI, add up all your monthly debt payments (like loans and credit cards) and divide that by your gross monthly income. Then multiply by 100 to get a percentage.

What is considered a good debt-to-income ratio?

Generally, a DTI of 36% or lower is considered good, with 28% of that going towards housing expenses. Lower ratios indicate better financial health.

How can I improve my debt-to-income ratio?

You can improve your DTI by paying down existing debts, increasing your income, or avoiding new debt. Budgeting can also help manage expenses.

What impact does my debt-to-income ratio have on getting a loan?

A lower DTI can improve your chances of loan approval and may qualify you for better interest rates, as it indicates lower risk to lenders.