Managing Your Debt To Income Ratio

One of the hardest things to hear is to have your bank manager tell you your debt to income ratio is too risky for any lenders to want to give you any money. Especially when it comes to making plans to buy a house.

Even if you have never made a late payment in your entire life and have a great credit score, a poor debt to income ratio can be either the key or the lock to your financial loans future.

Credit card balances and student loans can reek havoc with your debt to income ratio. Depending on your age, it may be necessary to entertain the idea of someone co-signing a loan for you to be approved for a mortgage. Making your debt to income ratio more appealing to lenders can have an almost magical effect on how you are accepted in the financial world.

When I first moved into my first house, I started to focus on how I could decrease my debt. I started to nail my credit cards before anything else because of the interest rates. Even if I could only afford to send an extra $10 each month, at least I was making a tiny dent in my debt to income ratio. I transferred my highest balances and interest rates to 0% interest rate cards so that I could pay off more per month than I was before. By saving about $40 per month from not having interest rates, my balances actually began to fall. It was a slow process, but worthwhile.

Three years later, I was looking for a larger house and to move up in the world. Since my debt to income ratio was more under control, I was able to qualify without having a co-signer. That was the happiest moment of my life. Figure out what your debt to income ratio is and attack it. Don’t let it hinder your future.

Until I looked at a debt to income ratio, I had no idea that I had been continually plummeting into debt for the last several years. The thought never crossed my mind. I have gotten a home improvement loan, I had spent thousands of dollars on a state-of-the-art home entertainment system, I had taken a few expensive vacations, and put one kid through college. I knew that I was making debt payments that were higher than I wanted, but I had no idea how far it had gone.

If I hadn't looked at that income to debt ratio, I never would've really realized it. On the surface, it seemed like I was still making enough money to live the good life, but the debt to income ratio showed me the truth. The truth was that my debt to income ratio had grown so dramatically in the last few years that I no longer had the money to support my lifestyle. I needed to eliminate some of that debt!

It took me hours to put all the numbers into a debt consolidation calculator. I had never calculated debt to income ratios before. When I did, however, I was both shocked and relieved. I was shocked to see further confirmation of my high debt to income ratio, but I was relieved to find out that it was possible to dig my way out of debt. All was not lost. My financial future was still salvageable. I got a debt consolidation mortgage loan, decreased the amount of money that I spent on entertainment, and shifted my priorities around. By the time I was done, I had a plan that would shift my debt to income ratio within 18 months. I have not been in serious debt since them. I have learned to keep an eye on my debt to income ratio.