What is a debt-to-income (DTI) ratio, and why is it important?
DTI is a crucial financial tool that shows how much of your monthly income goes toward debt payments like loans and credit cards. It can help you get a better picture of your financial health, but more critically, it is something all lenders use to determine if you can handle more debt. If you're hoping for a loan, one of the first things a lender will look at is your DTI. If it's too high (typically over 36-40%), you'll risk not getting the loan or being given an extraordinarily high-interest rate.
Your DTI is calculated by adding together any monthly debt expenses (car payment, mortgage, credit card minimums, student loans) and dividing that number by your monthly gross income.
Let's look at this example:
Mortgage - $1400
Car - $400
Credit Card - $300
Monthly debt expenses = $2,100
Gross Monthly Income = $5000
$2100/$5000 = 0.42 = 42%
In this case, the DTI is 42%, and this individual will likely have some difficulty getting a good loan. If your DTI is over 36%, consider decreasing your debt load if possible (ie pay off those debts ASAP). If it's under 36%, you're doing great... keep it up!
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Hey, everyone! I want to share a personal story with you that taught me some important lessons about credit and financial management. 😬
Recently, I lost $23,000 in available credit overnight with the X1 Card. Waking up to find out that a massive portion of my credit limit had disappeared was a shock, to say the least! This sudden reduction really got me thinking about how credit limits can impact our financial health—especially when we least expect it.
💳 What Happened:
The X1 Card issuer decided to lower my limit without warning, likely due to changes in my credit score or spending patterns. While it didn’t leave me with a major financial issue, it did have an immediate impact on my credit utilization, which can affect my credit score if not managed properly.
⚠️ Why It Matters:
Credit limit reductions like this can catch you off guard, especially if you rely heavily on one card. It’s a reminder to always monitor your credit and be prepared for changes.
💡 What You Can Do to ...
Hey WealthWithDoty family, I wanted to share my incredible journey with you all. Before meeting Holly, I was struggling with multiple businesses and no clear direction. But thanks to her amazing coaching and the AIM methodology, I've transformed my approach and regained my focus.
Check out video here:
If you're feeling stuck or need guidance, I highly recommend connecting with Holly. She can make a real difference in your journey, just like she did in mine! 🙌
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Which of these financial tips do you apply?
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