You should definitely look into it if you’re hoping to get a loan for a house or car and you’re not sure what your debt-to-income ratio is.
You might find out you need to pick up a part-time job before you apply for a loan.
Your total monthly debt payments (including credit card payments, rent or mortgage payments, auto loans, school loans, and any other monthly expenses) divided by your gross monthly income is your debt-to-income ratio, or DTI.
When evaluating your eligibility for a loan, your debt-to-income ratio plays a significant role in determining the interest rate. When a mortgage/rent ratio is included in the formula, lenders typically want to see a ratio under 3.5 percent, but this varies depending on the bank or lending institution.
If your debt-to-income ratio is greater than 33.5 percent, you may still be eligible for the loan, but the interest rate will be significantly higher.
Reducing spending is the simplest approach, but if your budget consists only of the necessities, increasing your income might be the better course of action. You can try requesting a raise, but getting a flexible side job and saving the money is a guaranteed way to make ends meet.
You could pursue a traditional side gig, but as the chart below illustrates, it might take some time to earn enough money to have a meaningful impact on your DTI.
What is the Fastest Way to Raise Debt to Income Ratio?
The debt-to-income ratio (DTI) is a crucial financial metric that lenders use to assess your ability to manage debt. It compares your monthly debt payments to your gross monthly income, expressed as a percentage. A lower DTI indicates a better ability to handle debt, making you more attractive to lenders.
Understanding DTI:
What is DTI?
DTI is the percentage of your gross monthly income that goes towards debt payments. It includes all recurring debt obligations, such as:
- Credit card payments (minimum payments)
- Loans (car, student, personal, etc.)
- Housing payments (rent/mortgage, property taxes, insurance)
- Alimony and child support
How is DTI Calculated?
To calculate your DTI. follow these steps:
- Add up your monthly debt payments. Include all recurring debt obligations mentioned above.
- Determine your gross monthly income. This is your income before taxes and deductions.
- Divide your total monthly debt payments by your gross monthly income.
- Multiply the result by 100 to express it as a percentage.
For example:
- Monthly debt payments: $2,000
- Gross monthly income: $5,000
- DTI: (2,000 / 5,000) x 100 = 40%
What is a Good DTI?
Depending on the lender and the kind of loan you’re looking for, there are different ideal DTIs. Generally speaking, a DTI below 2036% is regarded as good, but a DTI above 2050% may cause you to question your ability to manage debt.
Why is DTI Important?
DTI is significant because it aids lenders in evaluating your creditworthiness and figuring out how much debt you can manage. A low debt-to-income ratio (DTI) suggests that you have managed your debt well and are less likely to miss payments on future loans.
How to Improve Your DTI:
1. Reduce Your Debt:
- Pay off high-interest debt first: Focus on paying off credit cards and other high-interest debt to reduce your monthly payments and improve your DTI.
- Consolidate your debt: Consider consolidating multiple debts into a single loan with a lower interest rate, reducing your overall monthly payments.
- Make extra payments: If possible, make extra payments towards your debt to pay it off faster and lower your DTI.
2. Increase Your Income:
- Ask for a raise: If you’ve been with your current employer for a while and have consistently performed well, consider asking for a raise to increase your income.
- Get a side hustle: Take on a part-time job or freelance work to supplement your income and boost your DTI.
- Negotiate lower interest rates: Contact your creditors and try to negotiate lower interest rates on your debts, reducing your monthly payments and improving your DTI.
3. Avoid Taking on New Debt:
- Resist the temptation to use credit cards: Avoid using credit cards for unnecessary purchases, as this will increase your debt and worsen your DTI.
- Only take out loans when necessary: Before taking out a new loan, consider whether you can afford the additional monthly payments and how it will impact your DTI.
4. Monitor Your Progress:
- Track your DTI regularly: Calculate your DTI monthly to track your progress and see how your efforts are paying off.
- Set realistic goals: Set achievable goals for reducing your debt and increasing your income to improve your DTI over time.
Additional Tips:
- Build an emergency fund: Having an emergency fund can help you avoid taking on debt for unexpected expenses.
- Improve your credit score: A good credit score can qualify you for lower interest rates, making it easier to manage debt and improve your DTI.
- Seek professional help: If you’re struggling to manage your debt, consider seeking help from a financial advisor or credit counselor.
Improving your DTI takes time and effort, but it’s worth it. By following the tips above, you can reduce your debt, increase your income, and become a more attractive borrower to lenders. Remember, a healthy DTI is a key indicator of financial health and can open doors to better financial opportunities.
Pizza Delivery: An analysis
- Pay is $7-$10 per hour, plus tips.
- Salary ranges from $4 to $10 per hour, plus tips.
- In most bars, pay is only $3–$5 per hour, but when tips are included, that could increase to $20–$25 per hour.
- The majority are paid the minimum wage set by the state, but some start at $10 per hour.
- Retail clerk. Most part-timers receive up to $10 per hour, or the minimum wage.
Traditional part-time jobs have their advantages in that they offer guaranteed hours with a base hourly wage. The drawback is that with guaranteed hours comes a rigid schedule.
The sharing economy has given rise to a plethora of flexible part-time opportunities that are ideal for individuals who prefer to set their own schedules. In reality, they’re just conventional jobs with a contemporary twist that make it simpler to start earning a substantial income from things like babysitting or tutoring.
Drive for Uber or Lyft
By now, this isn’t anything new. Peer-to-peer taxi services like Uber and Lyft are so well-known that it’s likely you’ve heard of them already. However, there are a few other driving services you might not be aware of:
Grocery and supply delivery:
Food delivery:
Uber and Lyft drivers earn between $15 and $25 an hour, depending on what city they’re driving. The value of the other driver services ranges from $8 per hour to $25 per hour.
Many drivers use two or more of these services in tandem, which keeps them occupied while they switch between apps. Make sure you look for referral codes. Particularly well-known for offering referral bonuses, Uber and Lyft could earn you between $100 and $1,000 simply for registering.
Any marketable skill you possess—writing, photography, music, teaching, accounting, the list goes on and on—can be hired on a part-time basis by someone. The difficulty with freelance is that work can be hard to find when you’re on your own. That’s where these websites come into play.
Upwork connects businesses with freelancers. By building a profile, freelancers market their abilities to employers, who can then post jobs or look for candidates with a specific skill. Categories include web development, writing, photography, customer service, accounting and a whole lot more.
Fiverr is a little less formal than Upwork. There are many different categories within it, ranging from dance videos and celebrity impressions to social media marketing and legal consulting. Fiverr doesn’t have the option to look for job posts. Rather, you make a profile that highlights your special abilities and bide your time for jobs to come to you.
TaskRabbit focuses on handy work like furniture assembly or home improvement. You set your own rate and TaskRabbit notifies you of potential jobs in the area.
Your skill level and the number of hours you are willing to put in will determine how much money you make. The range is as low as $10 per hour and, with the correct skills, could reach $100 per hour.
Babysitting is no longer limited to your next-door neighbors. These websites link parents with experienced babysitters around the area.
The Babino app is similar to Uber for babysitting in that it facilitates payment and sitting requests via an app. The exception is that babysitters can set their own rates.
Care.com is a platform for babysitting as well as pet care, senior care, housekeeping and even tutoring.
Workers in this field should expect to earn between $12 and $20 an hour.
Tutoring: If you’re a teacher or a college student looking to supplement your income, use your skills. These websites help tutors find a steady source of clients.
Wyzant does a little more than just connect students with tutors. They have in-person tutoring and the software to enable online tutoring. You create your profile and set your own rate, but Wyzant processes the payment.
Tutor Matching Service does exactly what the name implies. All of their tutors are certified by colleges or universities, and Tutor Matching Service also processes the payment.
University Tutor links tutors with students. They also provide standardized test prep for SAT, ACT and others.
The tutoring market is hot because of so much competition academically. It can push market prices higher, depending on where you live, but the range should be between $15 and $25 per hour for specialized subjects like science or language, where tutors charge 20% to 25% more than that.
You might make enough money to upgrade that car or house you’re trying to get a loan for, so if your debt-to-income ratio isn’t what it should be, get online, find a match for your skill set, and get started!
Tom Jackson focuses on writing about debt solutions for consumers struggling to make ends meet. His background includes time as a columnist for newspapers in Washington D. C. , Tampa and Sacramento, Calif. where he covered and offered commentary on a wide range of topics, including local business marketing, state and local budgets, and the effects of professional sports on cities. Along the way, he has racked up state and national awards for writing, editing and design. Tom’s blogging on the 2016 election won a pair of top honors from the Florida Press Club. A University of Florida alumnus, St. Louis Cardinals fan and eager-if-haphazard golfer, Tom splits time between Tampa and Cashiers, N. C. , with his wife of 40 years, college-age son, and Spencer, a yappy Shetland sheepdog.
Home » InCharge Blog » How to Improve Your Debt-to-Income Ratio with Higher Income
How To Improve Debt To Income Ratio
FAQ
Can you get a mortgage with 55% DTI?
What is the perfect debt-to-income ratio?
How do I lower my debt-to-income ratio?
Paying off debt, avoiding taking on new debt, and increasing your income are the only ways to lower your DTI. To calculate your debt-to-income ratio, start by adding up all of your recurring monthly debts. Beyond your mortgage, other recurring debts to include are: Next, determine your gross (pre-tax) monthly income, including:
How do you calculate debt to income ratio?
Now divide your total recurring monthly debt by your gross monthly income. The quotient will be a decimal; multiply by 100 to express your debt-to-income ratio as a percentage. Your debt-to-income ratio, along with your credit score, is one of the most important factors lenders consider when you apply for a loan. Can You Afford That Big Purchase?
Do I need to know my debt-to-income ratio?
You need to know this number if you’re going for a mortgage. Your debt-to-income ratio (DTI) is a personal finance measure that compares the amount of debt you have to your gross income. You can calculate your debt-to-income ratio by dividing your total recurring monthly debt by your gross monthly income
What is a debt-to-income ratio?
Your debt-to-income ratio, or DTI, is a percentage that tells lenders how much money you spend on monthly debt payments versus how much money you have coming into your household. You can calculate your DTI by adding your monthly minimum debt payments and dividing the total by your monthly pretax income.