Maintaining a low debt-to-income ratio

Most people wouldn’t mind having more money in their pocket.

One way to keep the green in your pocket from turning into red on a spreadsheet is by maintaining a low debt-to-income (DTI) ratio. The ratio is determined by calculating the debts that you owe on car payments, credit cards and other loans against your gross annual income.

How can you work on keeping your debt-to-income ratio as low as possible? Here are some ways to keep your debt down and ultimately, out of your bills.

Eliminate credit card debt entirely

The most frivolous, avoidable debt out there is from credit cards. Plastic money should be used sparingly and only exceedingly during emergencies. Eliminating credit card payments will eliminate an easy way to get into debt.

Keep your car payments low

Vehicles are necessity for a lot of people, but if you don’t need one or can eliminate a car payment, the savings car range anywhere from a few to several hundred dollars a month! Saving that money in the long term will help grow your overall financial health.

Pay off all debt as fast as possible

That five percent yearly bonus should go straight toward paying off debt, not to buy a new boat or for a down payment on a new car. The same applies to the fat tax return you may get each year. Paying the bills now with extra money allows you to have more money in your pockets sooner rather than later.

Create a budget, stick to it

How does a budget apply in the scheme of a debt-to-income ratio? Sticking to a budget can help you avoid getting into debt in the first place. Listing out all your monthly expenses will show where you’re having shortfalls or overspending issues.

Need to determine your debt-to-income ratio?

Crunch the Numbers