Guide to improving your debt-to-income ratio: check out the tips

Tips for improving your debt-to-income ratio

Let’s face it: dealing with debt can be stressful. That feeling of having your income squeezed by your monthly commitments takes the edge off anyone’s sleep. But you can turn it around! Improving your debt-to-income ratio is possible with a few strategic changes.

Want to know more about this? Then keep reading until the end, because we’re going to explore practical tips for you to improve your financial situation without having to give up living your life.

What is the debt/income ratio and why does it matter?

Before we dive into the tips, it’s worth understanding the concept. The debt-to-income ratio (DTI) is a metric that compares how much you earn with how much you owe.

Lenders in the United States use this number to assess whether you are a good candidate for loans. A high DTI can make it difficult to access financing or even increase interest rates.

In short: the lower the percentage, the more “breathable” your financial situation. Want an example? If you earn $4,000 a month and your monthly debts total $2,000, your DTI is 50%.

The ideal? Below 35%, especially if you’re thinking of buying a house or financing something bigger.

1. X-ray your finances

The first tip is simple but essential: understand where your money is going. Use apps like Mint or YNAB (You Need a Budget), which help you organize your finances and identify unnecessary spending. No idea where to start?

Grab a notebook or use the app’s spreadsheet to list everything: rent, bills, card installments, subscriptions (Netflix, Spotify, etc.) and impulse purchases. The idea is to have total clarity about your situation.

2. Reduce superfluous spending

Once you’ve mapped things out, it’s time to cut down on what you don’t need. That daily coffee at Starbucks? Try making it at home during the week. Impulse purchases online? Turn off promotion notifications for a while.

But beware: we’re not telling you to deprive yourself of everything you love. Small pleasures are important to keep you motivated. The tip here is: choose what really matters and cut out the rest.

3. Renegotiate your debts

Did you know that it is often possible to reduce the amount of debt by renegotiating? Contact your creditors and ask for better terms. Explain your situation and see if they can reduce interest rates or extend the payment period.

Another option is to consolidate debts. In the United States, companies like SoFi or LendingClub offer programs that combine several debts into a single monthly payment with lower interest rates. This strategy can make financial management much easier.

4. Increase your income

Sometimes, cutting costs isn’t enough, and that’s okay! At these times, consider looking for extra income.

• Got a car? Try working as an Uber driver;
• Design or writing skills? Sign up for Upwork or Fiverr;
• Or maybe sell items you no longer use on sites like eBay or Facebook Marketplace.

Ultimately, any extra money will help to reduce your debt burden and improve your DTI faster. So consider these tips, because they can help you a lot in this process.

5. Prioritize debts with higher interest rates

This technique is called Debt Avalanche. It works like this: list all your debts, from the highest to the lowest interest. Concentrate all your efforts on the debt with the highest rate, while paying the minimum on the others.

Why does this work? High interest rates can make a debt grow too quickly. By attacking the highest interest first, you save more in the long run.

Conclusion

Improving your debt-to-income ratio is a process, but the results are rewarding. Imagine how it will feel to have more control over your money, without the constant worry of debt.

Remember: it’s not about being perfect, it’s about taking small steps in the right direction. And the best part? You’re not alone on this journey. Financial tools and communities can help you reach your goals faster.

So start today. Small changes can transform your financial life!

Written by

Juliana Raquel