Lower your payments

Your application has been declined.

Your debt-to-income ratio (DTI) is a key indicator of your true financial picture. It is the lending industry's measure of fiscal health. Your debt to income ratio is calculated by dividing monthly minimum debt payments by monthly gross income. For example, someone with a gross monthly income of $2,000 who is making minimum payments of $400 on debt (loans and credit cards) has a debt to income ratio of 20 percent ($400 / $2000 = .20). Your DTI ratio can have a very dramatic affect on your ability to obtain a loan. Lenders will look at this ratio as well as your credit score. They want to ensure that you will be able to repay the loan. There are two important ratios that most lenders use to determine your ability to repay.

The terms that lenders use to describe these ratios vary slightly from lender to lender. The first of these two numbers is sometimes referred to as your "back-end". This ratio is basically your total debt to income ratio. The second ratio is sometimes referred to as your "front-end". Usually, this ratio is considered your housing expenses to income ratio. The following calculator will help you determine both of these ratios. Authorities seem to agree that a DTI ratio of 10% or less is great. DTI ratios at 20% or higher are yellow lights as one emergency could topple the consumer big time. DTI ratios above 38% are in the red zone and can be precusors to bankruptcy. It is imperative for the consumer to reduce the DTI from 38% to a lower ratio immediately to prevent financial disaster.

The new bankruptcy laws are in effect which make it very difficult for consumers to have their unsecured debt discharged. But there are two ways to improve your DTI without filing for bankruptcy:

1) Negotiated debt settlement through a debt settlement company.

Pros: Reduces principal amount, reduces amount of time to pay off debt (3 years or less), lowers monthly payments 30% to 40%. For example, a consumer with $40,000 of unsecured debt would have a payment of approximately $612 a month for 36 months with this program.
Cons: negatively affects credit report by indicating accounts are delinquent until the accounts are settled (within 3 years or less). As accounts are settled, consumer receives a letter from the lender stating that the account has been paid with zero balance.

2) Debt consolidation through Consumer Credit Counseling Service (CCCS).

Pros: Lower interest rates, reduces amount of time to pay off debt (usually 5 to 7 years)
Cons: Monthly payments often remain the same as current debt payments or can be slightly higher, negatively affects credit report as CCCS - third party intervention which many lenders view as bankruptcy chapter 13. Negative remarks appear on credit report for the length of the program and for up to 7 years after completion of the program. Most people with unsecured debt under $10,000 cannot qualify for the negotiated debt settlement option. It is recommended that those consumers who have $10,000 of unsecured debt or more apply for the negotiated debt settlement option in order to reduce payments, pay off debt quicker, and minimize credit damage. Consumers who have $10,000 or more of unsecured debt and who are currently in a consolidation program can apply for a negotiated debt settlement program.

Deep in debt? Maybe we can help. Get a free debt quote with LifeLine Debt Solutions and see what we can save you.