Shopping for a Loan? Why You Need to Know Your Debt-To-Income Ratio

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debt to income ratio

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There’s nothing like applying for new credit to give you a crash course in financial vocabulary.  All of a sudden, terms you’ve never heard before become like a second language — at least until your loan comes through.

One of these terms is “debt-to-income ratio” — how much you owe on debt compared to how much you earn in income. This isn’t something you might think about regularly. But if you’re talking to a lender, then your debt-to-income (DTI) ratio should become top-of-mind.

Read on to find out what your DTI ratio is, why it’s so important, and how to lower it before you apply for that loan.

How to figure out your debt-to-income ratio — and why it matters

Some people conflate DTI with their credit utilization ratio (also called debt-to-credit ratio), but they’re two separate things. Credit utilization ratio is the percentage of how much you owe compared to your credit limits. It also impacts your credit score, which your debt-to-income ratio does not.

You can use our debt-to-income calculator to figure out what your DTI is. Just plug in the numbers and view the results, which will include two versions — a “back-end DTI” which includes all your debt, and a “front-end DTI” which considers just your housing costs.  Lenders can look at one or both of these numbers when approving loans.

Debt-to-Income (DTI) Calculator

And if you’re curious as to how to calculate your overall DTI on your own, here’s the formula explained by the Consumer Finance Protection Bureau (CFPB):

  • Add up all your monthly debt payments (i.e. mortgage, auto loan, credit card, student loans, personal loans, etc.).
  • Add up your gross monthly income.
  • Divide between the two.

Here’s a visual from credit reporting bureau Experian as an example:

how to lower debt to income ratio

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Experian recommends keeping your total DTI below 43 percent. But if you can go lower, 36 percent and below is even better, as Experian says that’s what most lenders prefer.

How to lower your debt-to-income ratio in 6 steps

If you’ve run the numbers and aren’t happy with what you see, don’t worry. There are things you can do to lower your debt-to-income ratio. In the end, it’s as simple (in theory) as decreasing your debt or increasing your income.

But since those are both easier said than done, here are six suggestions to help:

1. Refinance debt to pay it down faster

Paying down your debt will almost always be the best medicine for invigorating your DTI ratio, and refinancing can be a great way to do that — since the major goal of refinancing is to lower your interest rates. And once your interest rates are lowered, then more of what you pay can go to chipping away at your balance.

If you have credit card debt, one of the most effective ways to refinance is to take on a balance transfer credit card. These cards enable you to have no interest for a limited period, during which you can pay down your debt if you commit to paying more than the minimum.

(Don’t forget, even if you refinance to a lower interest rate, paying only the minimum each month will keep you in debt longer and cost you more money over time. This is especially true with credit cards, since credit card minimum payments only cover one to three percent of your balance.)

People plagued by student loans can refinance as well. There are many refinancing lenders for student loans that can help you obtain lower interest rates and better repayment terms.

But there are two things to keep in mind:

The first is that to stay in line with your goal of reducing debt faster, you might not want to take on a longer debt repayment term unless you plan on paying more than the minimum amount.

The second is that federal loans, once refinanced, turn into private loans. And once that happens, you’ll forfeit your right to utilize federal programs such as loan forgiveness and income-driven repayment plans.

2. Utilize a targeted debt payoff strategy

No matter what you do, utilizing a targeted debt payoff strategy will help you reduce your debt faster, cutting away at the “D” in your DTI.

Here’s what that means: If you’re in the process of paying down debt and you have more than one type of debt, don’t change your monthly payment on your total debt when one debt is paid off.

Instead, take what would have gone to the old debt each month and apply it to another one of your still-current debt accounts — on top of the minimum due. Continue to do this until you’re completely debt-free. And as you go along this route, your debt-to-income ratio will continuously decrease.

3. Redo your budget

Besides setting a targeted debt payoff strategy, you might be able to shift DTI in your favor by redoing your budget.

One possibility is to reconsider the idea of cutting back. If you remove too many line items from your budget, you might find it too restrictive to be sustainable, but what about replacing items with less expensive alternatives? Or reducing the frequency of certain expenses rather than cutting them out entirely?

Another eye-opener in this process can be comparing your actual expenses from the past few months to the budget you already set. Making sure your plans and reality match up can help you set a budget you can feel confident in.

4. Stay on top of your credit report

Even though your debt-to-income ratio doesn’t show up on your credit report, that doesn’t mean your credit report can’t impact it.

You could have errors on your credit report that you weren’t aware of — all it takes is one transposed digit in your social security number for someone else’s loan to show up on your report. Likewise, you might find accounts fraudulently opened in your name.

Such errors could be adding debt that you’re not responsible for to your DTI ratio. To check, you can get a free copy of your credit report each year at, a site jointly sponsored by the three top credit reporting agencies.

While you’re at it, take a look at your payment history. This one factor makes up 35 percent of your credit score — and if there are late payments reported that you made on time, you’ll want to ask your lender to fix that and report the proper payment history.

And if you spot an error or see accounts that you didn’t open, immediately dispute it with the credit reporting agency or agencies showing the wrong information.

5. Ask for a raise or overtime hours … or get a new job

Whether you’re an hourly or salary employee, consider what you can do to earn a raise. And if you’re paid by the hour, you could always look into overtime opportunities.

You might not get the result you’d like right away, but starting a conversation with your boss now will help you get on track. And if you’re successful, you might get the income boost you need to improve your DTI ratio (while also having more money to pay down the debt at the same time).

Meanwhile, if you find that you’ve tapped out what you can earn at your current company, consider looking elsewhere. Of course, it’s not always easy to secure a better-paying job, but you might find another company that pays more for the work you’re already doing or which has a better position not available where you work now.

6. Take on a side gig

As long as you’re not working around the clock or inundated with responsibilities at home, then taking on a side gig is a great way to boost your income.

So, what kind of side gigs are there? The list goes on and on. Here are just a few to get the thoughts flowing:

  • Love animals? Start pet sitting.
  • Interested in a change of scenery? Become a house-sitter.
  • Have a special skill? Consider freelancing on the side (as long as it doesn’t present a conflict of interest with your day job).
  • Love to drive? Become a Lyft or Uber driver.
  • Enjoy being around people? Get a job as a server or bartender.
  • Is the mall one of your favorite places? Take on a part-time job in retail.

Be creative and find an opportunity that lines up with your natural interests so you don’t come to resent the extra work. Then, apply all the extra funds to your debt so you can pay it off faster and experience a nice dip in your debt-to-income ratio.

Reducing your debt-to-income ratio has multiple benefits

The great thing about the strategies above is that they can work so well together. And even better, if you work to reduce your debt-to-income ratio, you’ll benefit in more ways than one.

Besides the fact that debt is expensive, certain types of debt can also affect your credit score. More specifically, credit cards and the balances you hold on them contribute to your credit utilization ratio — and that amounts to 30 percent of your score.

And, finally, having a lower debt-to-income ratio and a higher credit score will give you access to less-expensive credit. You’ll not only more likely get approved for credit, but you can get approved at lower rates when you have a higher credit score, as myFico illustrates here:

 how to lower debt to income ratio

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In other words, lowering your debt now can lower the amount of money that any future debt will cost you. Win-win!

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit, email us at, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.

Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.

Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.

Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.

3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance:Fixed rates from 3.899% APR to 7.804% APR (with AutoPay). Variable rates from 2.470% APR to 6.990% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.470% APR assumes the current index rate derived from the 1-month LIBOR of 2.08% plus 0.64% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.

5 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of October 1, 2018, the one-month LIBOR rate is 2.22%. Variable interest rates range from 2.72%-8.32% (2.72%-8.32% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit We also have several resources available to help the borrower make a decision at, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled. Applicants with an Associate’s degree or with no degree must have made at least 12 qualifying payments after leaving school. Qualifying payments are the most recent on time and consecutive payments of principal and interest on the loans being refinanced. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a cosigner who is a U.S. citizen or permanent resident. The cosigner (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a cosigner will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Estimated average savings amount is based on 14,659 Education Refinance Loan customers who saved on loans between August 1, 2017 and July 31, 2018. The calculation is derived by averaging monthly savings across Education Refinance Loan customers whose payment amounts decreased after refinancing, calculated by taking the monthly payment prior to refinancing minus the monthly payment after refinancing. We excluded monthly savings from customers that exceeded $4,375 and were lower than $20 to minimize risk of data error skewing the savings amounts. Savings will vary based on interest rates, balances and remaining repayment term of loans to be refinanced. Borrower’s overall repayment amount may be higher than the loans they are refinancing even if monthly payments are lower.

2.47% – 6.99%3Undergrad
& Graduate

Visit SoFi

2.47% – 5.87%1Undergrad
& Graduate

Visit Earnest

2.47% – 8.03%4Undergrad
& Graduate

Visit Lendkey

2.95% – 6.37%2Undergrad
& Graduate

Visit Laurel Road

2.48% – 6.25%5Undergrad
& Graduate

Visit CommonBond

2.72% – 8.32%6Undergrad
& Graduate

Visit Citizens

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.


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