Five Ways to Lower Your Debt-to-Income Ratio

Your debt-to-income ratio is a key factor lenders use when considering your application to borrow money. Here are five ways to lower your debt-to-income ratio and improve your chances of getting approved for a mortgage, loan, or credit card.

1. Pay off high-interest debt

Paying off outstanding, high-interest debt can reduce your overall debt burden and make it easier to manage your budget. Additionally, by lowering your overall debt burden, you may be able to qualify for lower interest rates on other loans, which could save you money in the long run.

2. Consolidate your debts

If you have multiple debts with different interest rates, consolidating your debts can reduce your overall interest rate and save you money in the long run. By consolidating your debts, you may also be able to reduce the number of monthly payments you need to make.

Many debt consolidation options are available, but two of the most popular methods are getting a debt consolidation loan or using a balance transfer credit card.

A Consolidation Loan: This is a loan that can be used to combine several smaller balances from credit cards or loans into one larger loan. As you begin to make payments on the loan and don’t accrue additional debt, you can reduce your overall debt-to-income ratio. You should consider a tool like a debt consolidation loan calculator to help you get your finances in order.

A Balance Transfer Credit Card. This allows you to transfer a large amount of debt from one card to another. Typically balance transfer cards will have low or 0% promotional interest rates for a few months or a year. This means you will accrue little to no additional interest on your credit card debt as you attempt to pay it off, which can help lower your debt-to-income ratio over time.

3. Cut back on spending

If you can’t afford to pay off your debt in full every month, you may need to cut back on your spending to make payments. This may mean cutting back on unnecessary items or limiting how much you spend every month on different categories. You can also opt for shopping at thrift stores instead of paying full price or buying store brands instead of premium brands at the grocery store. The way this helps lower your debt-to-income ratio is by reducing the amount of debt you accumulate on your credit cards.

4. Create a budget and stick to it

Creating a budget can be a great way to help manage your debt-to-income ratio. If you’ve never used a budget before, try using a free budgeting tool or even an Excel spreadsheet to track your spending and income. By understanding where your money is going, you can make better decisions about allocating your resources.

5. Make more money

Easier said than done, we know, but the easiest way to improve your debt-to-income ratio is by increasing your income. You could start by finding ways to increase your hourly wage or salary. You could also look into freelance work or starting your own business. If you can find ways to make more money, you may be able to reduce your overall debt burden and save money in the long run.

The more streams of revenue you have, the faster your debt will get paid off and the better your debt-to-income ratio will be.

The bottom line

There are a variety of ways that you can lower your debt-to-income ratio to improve your financial situation. By consolidating your debts, cutting back on your spending, and making more money, you may be able to reduce your overall debt burden and save money in the long run.

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