How to Cancel Credit Cards to Reduce the Debt-to-Income Ratio

Your "debt-to-income ratio" is a numerical description of how easy it is for you to pay off your debt. Reducing your overall amount of debt by canceling and paying off credit cards will improve your DTI ratio and help to improve your credit score.

Instructions

1

Examine your most recent statements from each credit card. Write down your total amount of debt from each card, along with the interest rate and credit limit.

2

Add up your monthly payments due, multiply by 12, and divide your yearly income by the total payments due this year. The resulting number is your DTI. Canceling credit cards will not automatically improve this ratio, but paying off the balances will. If you know you want to pay off a particular credit card and never use it again, canceling it will prevent you from racking up more debt. You'll probably save the most money by canceling the card or cards with the highest interest rates.

3

Call the credit card companies for the cards you want to cancel and ask them to close the account. They will often try to get you to stay by offering perks, a higher credit limit, or a lower interest rate. If the interest rate is significantly lower, it may be worth it to keep that particular card and cancel a different card with a now higher interest rate. If you're determined to close the account, don't let them convince you with their perks--they'll usually try hard to keep a customer.

4

Cut up the canceled credit cards into small pieces and throw them away into separate trash bags. As you pay off the balance on these canceled and destroyed cards without adding more debt, your DTI should improve.