The First Steps of Debt Reduction is Learning about Your Debt to Income Ratio

Many Americans look to bankruptcy as a debt reduction solution along with other measures because as a country we have one of the highest debt to income ratios as high as up to 50 percent per household. Having a high DTI as this can prevent people receiving any kind of financing or establishing credit. You can calculate this amount by taking the percentage of the debt you have versus the income you receive.

Before you can get a loan approved your debt to income ratio must be calculated. If you DTI is too high you are a risky borrower & may possibly have issues paying your creditors back.

How do you calculate the DTI?

You want to first calculate what your monthly income is; this could be a variety of things ranging from your monthly wages to alimony & child support.

Example

The next thing to be calculated is the debt you have incurred. Debt does not include any utility bills but it will include credit card balances mortgage child support business loans personal loans the car payment etc. Do not include it if it will be paid off within three months.

DTI = 20%

Example:

Monthly Income = $4500

Your Monthly Income = $4000
Fixed Monthly Expenses = $2,300

DTI = 58%

This debt to income ratio is very poor & shows that expenses are so high that it would be very difficult to gain any additional credit or financing.

Learning about where you stand in regards to your debt & income will help you decide what options you may need to take in regards to your financial status. If you consider any debt reduction methods the first step is always knowing where you stand in reference to your debt.

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