Understanding Your Debt-to-Income Ratio

Find Ways to Save and Get Out of Debt

February 2012

Your debt-to-income ratio compares the amount of money you earn to the amount of money you owe to your creditors. It's an important indicator of your financial situation and whether or not you have control of your spending.

To calculate your own debt-to-income ratio, tally up your predictable, recurring debts, your mortgage, car payment, insurance, etc. and divide it by your gross monthly income. If the resulting number is low, then you probably have your spending in check and your financial situation under control. If the number is high, then you probably have some work to do and need to find ways to get out of debt. Some of the ways you can consider doing that include:

  • Compare your credit card interest rates and pay down the highest ones first while still making at least the minimum monthly payment on the rest.
  • Consider making higher-than-usual payments and you may be able to get out of debt faster.
  • Save for large purchases and shop for items on sale
  • Avoiding using your credit card unless it's for an emergency
  • If they no longer have balances, close your high-interest credit card accounts.
  • Never make a late payment — for anything. Whether it's for your car, credit card or electric bill, when you make a late payment, you'll usually have to pay a late fee — which depletes your available funds and makes it harder to get out of debt.

Finally, remember that no matter where you are in your financial life, Ally will always do right by you and your money.