How to Change Your Debt Ratio

Debt ratio is the percentage of monthly gross income used to make debt payments each month. Some consumers pay little attention to their debt ratio. However, a high debt ratio can influence qualifying amounts for mortgage loans and automobile loans. To maximize buying power when financing items, it's imperative to maintain a low debt ratio.

Instructions

1

Ask your employer for a raise to increase monthly and yearly earnings or seek a position with your company that pays more. A higher-paying position changes your debt ratio because it reduces the percentage of your income spent on debt payments. For example, if you make $2,000 a month and pay $1,000 towards debt each month, your debt ratio is 50 percent. Increase your income to $3,000 a month and your debt ratio drops to 33 percent.

2

Apply for part-time evening jobs if an employment raise isn't an option. A second job in the evenings or on weekends adds income that lowers your debt ratio; and with the extra cash, you can pay down debt quicker.

3

Reduce living expenses as much as possible. Paying too much for a mortgage loan, rent or auto loan can negatively impact your debt ratio. If unable to earn additional income, modify your lifestyle and reduce recurring monthly expenses. Sell your current car and purchase a car with a much cheaper payment, or move into a home with a less expensive mortgage or rent. These methods reduce how much you spend on debt payments each month, and help increase personal savings.

4

Pay down your credit card debt. Maxed out credit card accounts will raise your debt ratio. Develop a strategy to eliminate balances and change your debt ratio. Keep cards locked in a place that's not easily accessible. Pay on time to avoid late fees and interest rate increases, and always more than the minimum to avert lingering balances.