Understanding Finances and Debt-to-Income Ratios: A Guide
Updated: May 7
Knowing your debt-to-income (DTI) ratio is one of the first things you may encounter when you start building up your finances. It is an accumulation of your monthly expenses divisible against your gross monthly income. In other words, you are trying to determine if the amount of money you earn can withstand the current costs you incur to sustain your daily living situation. To further understand the implications of DTI ratios with other personal financing aspects, utilize this article as your guide.
Why Is My Debt-to-Income Ratio Important For My Financial Stability?
Being aware of your DTI ratio can help direct you to better financial stability from a practical standpoint. It is because you can make more informed decisions by knowing how much purchasing power you have and what drawbacks you can expect when taking on certain payments.
For example, you may want to consider a car, but after determining your DTI ratio, the maintenance costs like gas money and turn-up rates may put you into higher debt. Thus, it would be wiser to either wait for an opportunity when you can get more income or until you can decrease your debts.
Your DTI ratio can also give your personal loan lenders, credit score accessors, and other financial professionals the much-needed insights they need to best illustrate your fiscal capabilities to meet your dues, build up your savings, and accomplish your personal financing goals (e.g., buying a house and car after paying your student loan debt).
As your DTI ratio improves, you can also take advantage of lower interest rates, better repayment terms, and possible referrals for other investment-focused programs. This way, you can look into meeting your personal career development, family’s needs, early retirement, emergency funding, and other similar privileges.
How Do I Compute My Debt-to-Income Ratio?
To have a preliminary idea of your DTI ratio, you should first add up all your debts, such as your utility bills, grocery costs, existing debt payments, and the like. The overall amount should be added up with your total gross income, which is what you end up earning once the taxes are subtracted. Afterward, you should divide your debt into your income.
Take note that your DTI calculations may be different once you compare them with other financial institutions, but don’t worry because they will show you their criteria to explain how they came up with their computations and make changes in case of any mistakes.
What Determines a Favorable Debt-to-Income Ratio?
One of the main things you have to remember about your DTI ratio is you need to keep it low, especially when you want to present yourself to reputable lenders. Otherwise, if you have a DTI percentage higher than 50 percent, you may not get many financing benefits due to the increased risk of possible loan defaulting.
Therefore, ensure that you have a DTI ratio lower than at least 49 percent just to be safe. Meanwhile, you can contact our team at 615-391-9378 for further inquiries about your DTI and possible financing options for you.
Being proactive about your finances, DTI, and other related concerns are the things that can help you best determine what you can fall back on during emergencies and what needs to be improved to avoid falling into debt pitfalls. Fortunately, you now have the practical knowledge necessary to guide you through the process. Thus, consider looking into your financial situation and find ways to significantly better your economic stability.
Are you looking for the best personal loan fit for your DTI ratio and financial needs? We at Mid-Town Finance Company Nashville can provide you with that. We offer real installment loans and do our best to ensure your borrowing needs are met through our hassle-free process. Apply today!