Debt to Income Ratio: Can You Really Afford That Car or Home?

“DTI” is the total of all your monthly debt payments divided by your monthly gross income. This number, which is a percentage, is used to determine lending limits by banks for big-ticket purchases – typically houses and cars.

How to calculate your debt to income ratio:

Calculating your debt to income ratio isn't overly complicated, the simple formula is: DTI = total monthly debt payments/gross monthly income

How to fix your debt to income ratio: 1. Line up Debt

Paying off the smallest debt will free up cash flow which helps your DTI score.

2. Cut Up Credit Cards

Cut up your credit cards and stop using plastic to help you avoid taking out more debt. If you're credit cards are paid off, simply cancel your cards.

3. Assess transportation costs

If your car is costing too much each month, it might be time to downsize your vehicle to something more affordable.

4. Refinance Student Loans

Keep in mind there are pros and cons to refinancing student loans and it's always best to make sure refinancing fits your financial goals.

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