Understanding Finance: What is my Personal Debt to Income Ratio, dti

The debt to income ratio, dti,is a term that relates your monthly income with your monthly expenses and often reveals the depth of financial problems you are in.

Getting into personal debt is a discouraging situation and it often seems there is no way out of the debt crisis. However with proper financial management all but the most dire of situations can be overcome and even reversed.

If you are in debt,you must have observed that it is really hard to get credit or access any other financial service. this is because the institutions calculate your dti ratio , realize you are in a financial crisis and steer clear. It is essential that you conduct a debt to income ratio assessment on your personal finances to enable you avoid a personal meltdown.

Debt ratio refers to the proportion of your income or possessions debt represents.

A dti less than 28/36 raises a red flag with most financial institutions so we can take it to be the safe limit.

Write down all your expenses, bills to pay both recurrent and otherwise. Include all the financial committment s you have in a given month.

On another sheet write your monthly income, It is advisable to be as modest as possible if you are in a profession that relies on tips or gifts.

Divide the debts by the income. What is your dti ratio?

Alternatively you can use an online dti calculator which allows you input all your debts and income and automatically does a dti calculation.

Remember that knowing your dti is only the first step on the road to understanding your finances.You have to learn how to pay off your existing debts or consolidate them.

It is important to take charge of your personal finances. Get all the information you need. study good books and read all you can. Most importantly, never be too shy to ask your financial adviser or service provider to explain finance management terms in simple language.