How To Figure Debt To Income Ratio

How To Figure Debt To Income Ratio?

How To Figure Debt To Income Ratio

How To Figure Debt To Income Ratio?

Debt-to-income ratio is financially crucial and you’ve to figure it out. Most especially if you want to take out a loan. Lenders are often strict with the DTI ratio.

To get your loan approved, maintain a low DTI ratio. If yours is high, this article will teach how to lower it so that you can achieve your goals.

Let’s discuss how to calculate your debt-to-income ratio.

What is an ideal debt-to-income ratio?

Most lenders agree to an ideal DTI ratio. For them, an ideal front-end ratio should be 28% or lower. And the back-end ratio –which includes all expenses-, should not be above 36%.

Nevertheless, lenders may accept higher ratios as often it depends on your credit score, assets, savings, down payment, and the type of loan.

How to get your debt to income ratio?

To obtain your DTI ratio, sum up your monthly loan payments and divide it by your monthly gross income. The result is expressed in percentage.

And here is the complete guide on how to figure out your debt-to-income ratio:

  • Add up your monthly mortgage payment, minimum credit card payment, auto loans, personal loans, payday loans, monthly child support payments, and other debt payments on your credit report.
  • Divide the answer by your monthly gross income. Your monthly gross income is your take-home pay, before taxes and other monthly deductions.
  • Convert the figure you’ve got into a percentage. That’s your DTI ratio.
  • Note that your monthly bills and financial obligations are not required. Don’t include utilities, groceries, insurance premiums, healthcare expenses, or daycare in the calculation because the lender doesn’t need them.

You may be qualified for a $350,000 loan but your DTI shows whether you can afford the monthly payment or not.
To understand the idea read the following content:

How to calculate the debt-to-income ratio?

Be happy, if you obtained a low DTI ratio and be ready to lower it, if you obtained a high one. Your DTI ratio demonstrates the status between your income and debt. Let’s us start the calculation.

Take, for instance, Mr. Gideon’s mortgage monthly payment is $2000, his car loan monthly payment is $1000, and other debts he pays monthly cover $1000.

So, sum up all his monthly debt:

His monthly debt = $ [2000 + 1000 + 1000] = $4000

But, Mr. Gideon monthly gross income is $12000

Now, let the debt-to-income ratio be DTI:

DTI = [Monthly Total Debt Payment] / [Monthly gross income]

DTI = 4000/12000 = 0.33

DTI = 0.33 X 100% = 33%.

So, Mr. Gideon’s debt-to-income ratio is 33%.

Using this method, calculate your debt-to-income. If your answer is high, you should read the next section. It’s helpful.

From this calculation, one can conclude that:

  • The bigger the debt you pay monthly, the higher your debt-to-income ratio.
  • The bigger your monthly gross income, the lower your debt-to-income ratio.

Let’s proceed to the next section.

How to lower your debt-to-income ratio?

So, you’ve calculated your DTI ratio but it’s high. Don’t worry. You can lower your debt-to-income ratio as it’s explained below.

  • Maintain a Low Budget: Develop a low budget. Do not make unnecessary purchases. Monitor your spending. Stock up money to pay down your debt. If you continue on a huge budget, you’ll find it difficult to reduce your DTI. The more your debt, the more the debt-to-income ratio.
  • Set up a Debt Payment Plan: There are two payment plans for a debt. One is the snowball method and the other is the avalanche method (also known as ladder method).

With a snowball plan, you pay down your small credit balance at first, and then you make minimum payments for the rest. Whenever you pay off a small balance, you go for the smaller, then to the next smaller and then on and on till it is cleared.

The avalanche method is based on higher interest rates. So, whenever you pay off the highest interest rate, you go for the next highest interest rate, on and on till it is cleared.

Ensure you stick to any of the plans you choose.

  • Lower your debt: High-interest credit cards should be lowered. And if you pay your bills on a regular basis with a good financial standing account, this may work. Contact your credit card company. Ask a way to reduce the rate on your plastic. If you don’t have a good financial standing account, this may work for you. Transfer the high-interest balance from your existing card to a new one with lower rates. Here is another option that it also works. Take out a personal loan to consolidate the high-interest debt so that it will become a personal loan with a lower interest rate. This is how to pay off debt fast with low income.
  • Don’t accumulate more debts: Quit making large purchases on your credit cards. Stop increasing your debt. Taking more loans drives up your DTI ratio and it hurts your credit score. Let your mind focus mainly on clearing your debt, not enlarging your debt.

How lenders view your debt-to-income ratio?

Often, lenders are strict with debt-to-income ratios and borrowers with a high DTI find it hard to get an approved loan. The DTI requirement varies from one lender to another as each loaner has its debt-to-ratio standards.

Creditors like personal loan issuers do not count on the DTIs but mortgage loan providers do. In most cases, the mortgage lenders accept 43% as the highest debt-to-income ratio.

However, some personal loan providers offer a loan to borrowers with 50% DTIs or more. Maintaining a low DTI ratio will help your confidence to negotiate a credit card debt.

Conclusion

This article is useful. It’s an article you need if you want to take out a loan to pay off a credit card debt. It shows the reasons why you need to figure out your debt-to-income ratio. It emphasizes how lenders use your debt-to-income ratio to evaluate your ability to afford a loan and above all, it shows you how to lower your debt-to-income ratio, if it is high.


How To Consolidate Credit Card Debt With Bad Credit

How To Consolidate Credit Card Debt With Bad Credit?

How To Consolidate Credit Card Debt With Bad Credit

How to Consolidate A Credit Card Debt with Bad Credit?

At first, you wanted a credit, but it later turned into an overwhelming debt. It is inevitable and it can happen to anybody. Knowingly or unknowingly! As a result, you lie into your bed awake every night, because of the credit card debt.

Everybody take out debts. You’re not alone. There are ways out. They worked for others and as a result, they will work for you. Don’t worry. With this article, you’ll gain control over your finances, you’ll erase your debt, and you’ll find it easy to sleep again.
Let’s begin on how to consolidate a credit card debt with bad credit.

How To Pay Off A Debt Fast With A Low Income?

To pay off a credit card debt you’ve to consolidate the debt. And by taking out a personal loan online, you can do that. A single payment attracts a lower interest rate compared to that of the credit card debts.

Is It A Good Idea To Consolidate A Debt With A Personal Loan?

Taking out a personal loan may not be the best consolidating option for you because there are other options that need to be checked. Let’s us discuss those option with their pros and cons, so that you won’t find it complicated when making a decision on what method to use. At first, let’s get a list of the other options of credit card debts’ consolidation.

What are the other ways to consolidate a credit card debt apart from a personal loan?

There are other ways to consolidate a credit card loan apart from using a personal loan. The listed options are other credit card consolidation options:

  • Using a balance transfer credit consolidation.
  • Taking out a 401(k) loan to pay off a credit card debt.
  • A home equity loan or a line of credit can also be used to consolidate a cc loan.

Is there a way to consolidate a credit card debt without hurting your credit?

No!

There are many options to consolidate a credit card debt, but there is no best way to consolidate the latter. Some can just be the best option for your specific condition or be less risky than the other options. Ensure you understand the potential risks of an option before taking it.

Before we discuss each option, much must be discussed on your debt-to-income ratio, credit reports and scores. They are crucial because using the wrong option to consolidate a debt can hurt your credit.

How to Figure Out Your Debt-to-Income Ratio

To obtain your debt-to-income ratio, sum up your monthly loan payments and divide the sum by your gross monthly income. If it looks good, you’ll find it easy to get a loan.

How to check your credit reports and scores

Check your credit reports. Evaluate their accuracies. Ensure there is no error because an error on any of your credit reports can be disastrous. It can cost you a disqualification for the debt consolidation help you need. Ensure you dispute any error you find on any of credit reports.

Where can you get your credit reports from?

You can get your full credit history and the listed reporting agencies can provide you with your credit reports for free:

• TransUnion
• Equifax
• Experian

With a free credit report summary from any of the listed agencies, you’ll understand where your credit stands and that will help you choose the best consolidation plan for your situation.

What’s next? … Considering each credit consolidating option.

Methods of Credit Card Debts Consolidation

#1. Personal Debt Consolidation Loans

A personal loan is better than a credit card debt. Turning your credit card debt to a personal loan is a good option.

A personal loan interest rate is better. It charges small interest rates compared to that of credit cards which the latter varies from time to time.

Credit cards are revolving credits designed for short-term repayments whereas a personal loan can be paid back on the long term.

Consolidating your credit card debt into a personal loan is a nice decision as the latter has a constant interest rate with no variation.

With a personal loan, you’ll find it easy to sleep at night.

Just take a personal loan online, without leaving the comfort of your home and pay off your credit card loan once and for all.

Online lenders have credit requirements. Meet the requirements. Ensure you have an excellent credit score. With that, you will be qualified for a personal loan with a fast approval.

Before applying for a debt consolidation online, verify the lender. Check out your potential lender with the Better Business Bureau. Also contact the Attorney General’s office, the Department of Banking, or the Financial Regulation to know if the online lender is a registered business of your country.

Be cautious. Be alert to risk. Never trust an online loaner that pledges to grant a loan regardless of your credit. Stay away from an online lending platform that demands a huge upfront before granting a debt consolidation loan as well.

#2. Use a balance transfer credit card

This is another working method which is paying off your cc debt with a balance transfer. You’ll be rewarded by a credit card company when you transfer the balances from your credit card (with a high-interest rate) to a new credit card or a credit card with a lower interest rate. The reward is an introductory 0% interest rate on the transferred balances. This can also happen sometimes with your purchases.

This method is like a coin. It has its good and bad sides.

Pros:

With a balance transfer, you can avoid paying the huge interest attached to your old credit card.

Cons:

For every transfer, there is a fee. The fee is usually 3% of the balance transfer or $5. To worsen it all, some lenders restrict borrowers from using this method.

#3. 401(K) Loan

You can also erase your debt by using 401(K) loan. But it’s not the best option for an employer-sponsored account.

However, it may be an option, if and only if the other debt consolidation methods do not work for you.

A 401(K) loan doesn’t show up on a credit report when taken out. The pitfall comes if you can’t repay. And it comes with a bulky penalty plus taxes on the unpaid balance so that at the end, you’ll have to pay a higher debt.

A 401(K) loan is scheduled for 5 years. If you lose or quit your job, such loan has to be paid in 60 days.

Pros of using 401(K) Loan:

  • Comes with a lower interest rate.
  • No traditional application; it’s just as easy as borrowing money from yourself.
  • No credit check; The loan doesn’t show up on your credit history.

Cons of using 401(K) Loan:

  • Reduces retirement funds because taxes are not removed until you want to retire.
  • Comes with a bulky penalty plus taxes if you can’t repay.
  • Repay within 60 days if you lose your job; no mercy.

#4. Home Equity Loan or Line of Credit (HELOC)

Do you own a house? If yes, take out a home equity loan or a line of credit, and use it to pay off your credit card debt.

But here is the difference between a home equity loan and its line of credit. The home equity loan comes with a fixed interest rate whereas the line of credit offers you the chance to borrow the money you need again and again, but with a variable interest rate.
A HELOC comes with a draw period. And the draw period is the amount of time you can withdraw funds from a credit or take out an equity loan without repayment. But after the draw period, you’re responsible for the loan repayment. The draw period ranges from 5 to 20 years, but it is 10 years most of the times.

So if you take out the line of credit ensure you pay more than your minimum payment. Doing so will reduce the principal. After the draw period, you would have avoided the dent of the overall debt.

Pros:

  • Comes with a lower interest
  • No credit check

Cons:

  • Lose your house, if you fail to pay.
  • Long repayment terms; sometimes 10 years or more.

Conclusion

This article is helpful. It shows you how to erase your credit card debt fast with a low income, and it tells you how to do such thing by considering many options.


How To Pay Off Debt Fast With Low Income

How To Pay Off Debt Fast With Low Income?

How To Pay Off Debt Fast With Low Income

How To Pay Off Debt Fast With Low Income?

Have you taken out a personal or payday loans online and now you’ve been trying everything you could to pay off the debt with a low income? Perhaps you have a huge debt on your credit card and you’re scared to death because your monthly earning can’t afford it.

Now, what shall we do? You owe a loan but, you are earning a low income and as a result, you are finding it difficult to pay it off. You’re not alone. Though we’re far apart, I know how you feel. You lie in bed awake at night, because of them.

Your debt weighs you down. Don’t be confused. Don’t worry. You’re about to solve the problem. You’re about to know how to pay off debt with a low income. That’s exactly what this article is about.

Let’s get started.

How to Get Out Of A Debt on a Low Income

Loan repayments can take years if the borrower doesn’t know how to get out of it. Nonetheless, you can get out of your debt. Yes, it seems difficult but with this section, you’ll find it easy to do so. The latter provides you with tips to pay off your debts faster. As we proceed, each tip will be explained.

Don’t Take More Debts: Live within your limits and handle your money. Don’t spend beyond your means. Stop using your credit cards. Freeze them. Don’t make things harder. If you increase your debt, your financial life will squeeze and you’ll be hurt badly. Focus on the debt you owe and put all your strengths to pay down the latter. If you grow your debt, you’ll find it difficult to bear with it.

Create a Debt Hierarchy: On a list, arrange your debts in order based on their interest rates. Higher interest rate debts should be at the top. Pay the first on the list, then the second and so forth and so on.

This is an effective way to get out of debt in time. With a debt hierarchy plan, you’ll find it easy to control your finances and know what to do at a specific time in terms of a loan repayment.

Interest is crucial. It can increase your debt payment. It does it drastically. Permit me to give an instance.

A credit card debt of $15000 at an interest rate of 21%, is expected to get a $500 minimum repayment per month. The loan repayment will cover 8 years and 2 months (98 months) and that attracts an interest of $11350.56

That’s how bad an interest can be. So, it is wise to pay off the debt with the highest interest rate by using a debt consolidation method.

Reduce the Interests: You may ask: “Why should I lower my interest rate?” You should. It helps you get out of a debt faster. Just process a balance transfer. Move the balance from your credit card to another bank’s credit card account.

If you do that, the new bank will reduce the interest on your balance but before doing that, check a list of the credit card companies. Evaluate their lower interest rates for new customers. Choose the best out of them. It’s that easy. Also, ensure that you have read the company’s terms and conditions so that you don’t fall for a bait.

Break the Extravagant Habit: Live on a low budget. Don’t spend much as you know that you are on a debt. Only spend on worthy things. Minimize your spending and cut the fast food. Quit the parties as well.

Sell Your Old Properties: If you really want to get out of debt fast, sell goods you have, but you don’t need. It’s a quick way to raise a fund which you can use to pay down your debt.

Just check your house. Look into your wardrobe. Gush out the old-fashioned trends of clothes you no more wear. Gather the old electronics you no more use. Check your garage. Get car parts. Gather all kinds of stuff that litter your house without any specific reason. Sell them off and raise money. Use the fund to pay off your debt.

And you know something? The Internet is helpful. There are plenty of online marketers ready to help you sell your old properties. Contact one of them and make a deal. Sell your stuff. Have your money and pay off your debt. It’s that simple.

Find a Part-time Job: Expand your source of income. It will help you raise money. By doing so, you’ll find it easy to pay off your debt. Take up part-time jobs on holidays. Do seasonal jobs. Earn more money. Be dynamic and flexible. Get some extra cash, accumulate it and extinguish your duties.

There are seasonal greenhouse works. There are farm works, emergency plumbings, online freelancing and many other temporary works. Get one. It’s within your reach.

Perhaps you think all these things are stressful and you want to back down. Read the next section and understand the reasons why you need to get out of the debt asap.

Why do you need to get out of debt?

Do you want to become debt free? Don’t back down yet. Being in debt can be terrible. Use all the tips you were provided earlier to get out of a debt as fast as you can. Don’t be discouraged because it takes a lot of work. Yes, it takes effort. Give it what it takes.

Open your eyes. Close them. Look inside you. Imagine how your life will be if you were debt free. Get a paper. Write down the reasons why you need to get out of debt fast. However, the common reasons are mentioned as we proceed.

Let’s begin.

  1. A debt can stop you from saving money. Get out of it and you’ll be free to plan your financial life.
  2. Being on debt, prevents you from spending on whatever you wish. Make a purchase you don’t really need and you’ll feel guilty because you just increased your debt. But if you were debt free, you could freely spend on things you enjoy without any blame.
  3. Debt can wake you up at night. It can make you lie awake all night as it can lead to extra stress. Stress can damage your health in a way that it could lead to a heart attack. It can cause migraines so get out of it and save your life.
  4. A debt can take your properties away from you. Your mortgage lender owns your house. Your auto loaner owns your vehicle. Your tuition loaner owns your career. Until you pay off your debts, you cannot be left in peace.
  5. Most importantly, a debt can squeeze your credit score. And it’s the major reason why you need to get out of it. Much is discussed on this issue in the next section of this article.

How A Debt Affects Your Credit Scores

Debts can eat up your financial life as they can affect your spending power. Deaden your financial clout and you could find it hard to even borrow money because your credit score will be affected negatively. The greater your debt, the lower your credit score.

The credit score is important. It shows how close or far you are to balance your debt. Pay up your debt and you’ll get a better credit score. Don’t pay up your debt, and you’ll get a bad credit score. Let your credit score rise. Lower your credit utilization and don’t let your credit score suffer. Meet your monthly debt payments and void losing credit score points. Don’t let your debt be delinquent. It can cause a lasting damage on your credit score which can take several years for it to repair. It is preferable to consolidate your debt or take up credit counselling as they cannot affect your credit score severely. Just ensure you are debt free.

You know. The thing has two ways. Firstly, your credit card can be on a revolving debt. In that case you’re permitted to borrow as much as you want until you reach your credit limit. Keep in mind that with this situation, your interest rates also grow bigger. Secondly, you have taken out an installment loan. Here, the interest rate is fixed and the monthly repayment is also constant.

In any case, you must meet your monthly repayments. You have not to miss a single one so that you will not fail to repay your debt. If you do, it’s a terrible mistake and it can damage your report because your lender will send a report to the credit bureaus. The harm remains on your credit history for several years.

Stop enlarging your debt. Know the amount of money you owe, with its interest rates. Make sure to follow a good budget plan that will get you out of the latter as fast as possible. Cut your expenses and pay off your debts. Consolidate your credit cards with a balance transfer and take up temporary jobs to raise the funds to pay down your debt. Just be debt free.

Conclusion

This article is helpful as it shows you why you need to get out of your debt, how to get out of the latter, and how your debts affect your credit score. Even with a low-income, you can pay off your debt fast by keeping in mind all the aforementioned criteria.