Remember that improving your DTI ratio is based on debt payments, and not debt balances. You can lower your debt payments by finding a debt solution with lower interest rates or a longer payment schedule. Another way to lower your monthly debt payment is to consider a nonprofit debt consolidation program that lowers your interest rates and your payments. Lowering your monthly debt payments can help you improve your ratio and qualify for a loan.

Other alternatives to consider to lower your expenses and pay off debt:

  • Cancel your cable subscription or opt for a cheaper plan to reduce your monthly costs. Then look at your other telecommunications expenses. Can you move to a cell-phone plan that uses less data and costs less?
  • Put off large purchases until you have more cash. The more cash you can apply to a purchase, the less you have to borrow, so open a savings account to help pay for big ticket items such as cars and vacations.
  • If you have student loans, the bane of the Millennial generation, see if you can get a lower required payment. Lenders use your required minimum debt payment to arrive at an income-to-debt ratio, so the lower the required payment, the better your ratio. Generally, nothing prevents you from making larger payments if you have extra cash — that’s not the issue here.
  • Refinance loans if it makes sense. Interest rates have fallen dramatically since the Great Recession and remain low. Check with a lender to see if refinancing, which might involve upfront costs, makes financial sense.
  • Change your shopping habits. Consider shopping for groceries at big-box retail stores like Wal-Mart. See if you can repair, rather than replace, tired appliances. Try to keep your old car running for another year or two and avoid the impulse to buy the fashion-forward clothes when the slightly dated ones will do.
  • Sell unneeded stuff on eBay or Craig’s List and apply the proceeds to your debt-payment plan.
  • Don’t buy on impulse. If anything is sure to undermine your strategy, it’s unnecessary feel-good purchases.

Most important, make a realistic budget designed to lower your debt and stick with it. Once a month, recalculate your loan-to-income ratio and see how fast it falls under 43%.

Increase Your Income

Improving the income side always is more difficult because it requires the one thing no one has enough of – time. Finding a night-time or weekend job that produces even a couple of hundred dollars could be the difference maker in getting your debt-to-income ratio below 43%.

Here are some ways to increase your income:

  • Ask for a salary increase at work
  • Start a small business
  • Advertise your skills on Craigslist: house cleaning, handy man work, babysitting.
  • Start driving for Uber or Lyft.
  • Flip furniture or other goods: buy at garage sales and flea markets, sell on eBay and Amazon.
  • Mow lawns, shovel snow, pick up holiday shifts.
  • If you’re a stay-at-home spouse, watch other people’s kids too.
  • Offer rides to the airport from your town for a fixed price. Advertise on a community Facebook board.

Finding a combination of the two – part-time job, plus reducing expenses – is the ultimate solution and might even bring your debt-to-income ratio down below the 36% level that lenders are anxious to do business with. If working extra hours doesn’t appeal to you, remember – this is just temporary. You can use the income to pay off debt, reducing your ratio and your need to work extra.

Why is monitoring your debt-to-income ratio important?

Calculating your debt-to-income ratio can help you avoid “creeping indebtedness,” or the gradual rising of debt. Impulse buying and routine use of credit cards for small, daily purchases can easily result in unmanageable debt. By monitoring your debt-to-income ratio, you can:

  • Make sound decisions about buying on credit and taking out loans.
  • See the clear benefits of making more than your minimum credit card payments.
  • Avoid major credit problems.

Creditors look at your debt-to-income ratio to determine whether you’re creditworthy. Letting your ratio rise above 40 percent may:

  • Jeopardize your ability to make major purchases, such as a car or a home.
  • Keep you from getting the lowest available interest rates and best credit terms.
  • Cause difficulty getting additional credit in case of emergencies.

Debt-to-income ratios are powerful indicators of creditworthiness and financial condition. Know your ratio and keep it low.

Is my debt-to-income ratio too high?

The lower your debt-to-income ratio, the better your financial condition. You’re probably doing OK if your debt-to-income ratio is lower than 35%. Though each situation is different, a ratio of 40% or higher is a sign of a credit crisis. As your debt payments decrease over time, you will spend less of your take home pay on interest, freeing up money for other budget priorities, including savings.