Borrowing money is easy, but managing debt wisely is a different ball game. One of the most important metrics lenders and borrowers rely on is the Debt-to-Income (DTI) ratio. Often called the “golden ratio” of personal finance, the DTI helps determine how much debt you can safely handle relative to your income. Understanding this ratio can protect you from over-borrowing and financial stress.
What is the Debt-to-Income Ratio?
The DTI ratio measures the proportion of your monthly income that goes towards paying debts, including:
Home loans
Car loans
Personal loans
Credit card bills
Other recurring debts
Formula:
DTI Ratio (%)=Total Monthly Debt PaymentsGross Monthly Income×100\text{DTI Ratio (\%)} = \frac{\text{Total Monthly Debt Payments}}{\text{Gross Monthly Income}} \times 100DTI Ratio (%)=Gross Monthly IncomeTotal Monthly Debt Payments×100
Example:
If your monthly income is ₹1,00,000 and total monthly debt payments are ₹30,000, your DTI ratio = 30%.
Why the DTI Ratio Matters for Borrowers
Determines Loan Eligibility – Banks and fintech lenders like Vizzve Finance use DTI to assess repayment capacity.
Prevents Over-Borrowing – Maintaining a healthy DTI ensures you don’t commit more debt than you can handle.
Improves Credit Score – Lower DTI ratios reflect responsible financial behavior, boosting your creditworthiness.
Financial Planning – Helps allocate funds for savings, investments, and emergency expenses.
Ideal DTI Ratio
Below 36% – Healthy; most lenders consider this safe.
36–49% – Moderate; borrowing is possible but requires careful planning.
50%+ – High; risky and may lead to loan rejections or financial stress.
How to Manage Your DTI Ratio
Reduce High-Interest Debt – Prioritize credit cards or personal loans.
Increase Income – Side hustles or salary increments help lower your DTI.
Consolidate Loans – Combining multiple debts into a single loan with lower EMI can reduce DTI.
Borrow Smartly – Use small-ticket loans from trusted platforms like Vizzve Finance.
Track Regularly – Monitor your monthly DTI to avoid creeping debt.
Benefits of Following the Golden Ratio
Better Loan Approvals – Lenders favor borrowers with healthy DTI.
Lower Stress – You know exactly how much debt is manageable.
Financial Freedom – Maintain room for savings and investments while servicing debt.
Emergency Preparedness – Lower DTI allows flexibility to manage unexpected expenses.
FAQs
Q1: What is a good debt-to-income ratio for borrowers in India?
A DTI below 36% is generally considered ideal by banks and lenders like Vizzve Finance.
Q2: Can DTI affect my loan approval?
Yes. High DTI may lead to rejection or higher interest rates.
Q3: How can I lower my DTI ratio quickly?
Focus on paying off high-interest debt, consolidating loans, and increasing income streams.
Q4: Does DTI include all monthly expenses?
No, only recurring debt obligations. Living expenses like rent and groceries are not included.
Q5: Can fintech apps help me monitor DTI?
Yes. Platforms like Vizzve Finance provide tools and guidance to track and manage your DTI effectively.
Published on : 26th August
Published by : SMITA
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