Debt-To-Income Ratio: What Is It and Why Is It Important?

Debt-To-Income Ratio What Is It and Why Is It Important

A recent study found that only approximately 29% of American adults are considered financially healthy. A big part of improving financial health is paying off debt. Some people seem to think that the best way to obtain the little extras they need in life is by taking out loans or using credit cards. Debt-to-income ratio is vital to your financial standing.

While using credit or loans will help you buy something faster, it can also affect your financial health. When applying for any loan, one of the main things a lender will consider is your ratio. Below is information about this term and the importance of a low debt-to-income ratio. 

What is Debt-To-Income Ratio?

The term debt-to-income ratio is used to compare a person’s monthly gross income and their monthly debt expenses. If you want to calculate your own ratio, you will need a few basic pieces of information. 

Making a list of your monthly personal loan, car loan and credit card payments is the first step in this calculation process. Once you have the total amount of payments you are making monthly, you need to figure out your monthly gross income. 

You will then divide the debt payments you have by your income and that percentage is your debt-to-income ratio. Be sure you calculate your monthly income before taxes to ensure you get an accurate ratio. 

The Importance of a Good Debt-To-Income Ratio

When applying for a loan, the lender you use will consider many factors before approving your request. One of the main things a lender wants to know is how much debt you currently have. If your debt-to-income ratio is high, it will be difficult to get a loan for a significant amount of money approved. 

Calculating your ratio before applying for a loan can help you greatly. Most lenders will approve loans for applicants with a ratio of 36% or below. If your current debt-to-income ratio is higher than this, you may need to address this issue before applying for a loan. Avoid making money mistakes by applying with low ratio.

Great Tips For Lowering Your Debt-To-Income Ratio

Is your current ratio high? If so, it is time to do something about it. One of the first things you can do to lower this ratio is to pay off your outstanding debt. Most American consumers have around $3,000 worth of credit card debt

Regardless of how much debt you have, it is crucial to make a comprehensive plan to pay it off quickly. This is a good way to reach financial stability. You also need to avoid taking on any new debt until you get your current debt-to-income ratio down. By recalculating your ratio monthly, you can estimate how much progress you are making. 

Education is Power

The more you know about what lenders look for when inspecting a loan application, the easier it will be to get approved. By following these tips, you can lower your debt-to-income ration and get the funding you need with ease.

4 Steps to Avoid When Trying to Get Out of Debt

Get Out of Debt

Making the decision to get out of a debt is the first step in your journey to financial freedom and security. However, paying off all of your debt isn’t something that happens overnight. It takes careful planning, smart decisions, and commitment.

Here are steps you’ll want to avoid so that you can be successful regaining control over your financial health.

1. Not Changing Your Spending Habits

Humans are creatures of habit, and you’re no exception. We tend to repeat our actions. Why? Because it’s comfortable and what we have become accustomed to.

However, if your goal is to pay off financial obligation, you can’t continue with the same spending habits. This means you’ll have to work extra hard to stop doing things you’ve been doing for months, if not years.

Some of the best ways to improve your spending include:

  • Cooking meals at home
  • Not making impulse buys
  • Separating wants from needs

You don’t have to stop spending on things you enjoy. However, it’s important to make better choices with the money you do spend.

2. Not Creating a Budget

One of the most important tools you’ll need in order to pay off financial obligation is a budget. Without a budget, it’s impossible to gain control of your finances.

Most people don’t create a budget because it “takes too much time.” But the reality is that creating a budget doesn’t require hours upon hours. Getting started is simple.

Start by writing down all of your income. Then write down all of your bills, such as your car payment, mortgage, and utility bills. With the money you have left over, save as much as possible, while also saving some funds for a rainy day.

In the age of swiping cards and mobile payments, it’s all too easy to lose track of how much you’re spending.

3. Trying to Pay Off Too Much Debt at Once

Many people make the mistake of trying to put an end on your debt by paying everything off at once. If you have multiple credit cards and loans, you may put all of your money towards them each month, leaving nothing left to account for emergencies.

Instead of trying to tackle all of your financial obligation at once, prioritize your debt. Start by:

  1. Listing all of your debt
  2. Ordering debt from highest to lowest interest rate
  3. Paying off any small balances (i.e. $200)

Start by paying off the highest interest debt first. Once this debt is paid off, go to the next card or loan with the next highest rate.

You may also want to consider debt consolidation. If you have several credit cards and loans, you can combine them into one loan that is paid at a single interest rate.

4. Not Getting Help

Tackling debt on your own can become extremely overwhelming. Even if you’ve created a budget and prioritized your debt, seeing such large numbers can send you into a mental tailspin.

Don’t hesitate to ask for help and support from those around you. There are also non-profit credit counseling agencies, financial courses, debt counseling, and credit counselors available to help you every step of the way.

Stop Letting Debt Weigh You Down

Carrying around years’ worth of debt gets quite heavy. The good news is that debt isn’t a life-long sentence. With a plan, commitment, and willingness to change, you can finally dig yourself out of your financial hole. Dont make unnecessary money mistakes.

Make financial freedom your future by not making these four common mistakes when getting out of debt.

3 Steps To Clean Up Your Credit Report

how to clean your credit report

Spring is here! While everyone begins this time of year with spring cleaning their homes and garages, it’s also a great time to clean up your credit report and work on rebuilding your credit.

If it’s been more than a year since you last checked your credit report, you may find unwanted or incorrect information accumulated over time. There are several things to look at beyond just accuracy, such as making sure that your credit cards and loans are the best ones for your current circumstances.

On top of that, if you’ve had a serious blow to your finances, such as defaults or bankruptcies, it can take quite some time to clean that stuff up and recoup any damages to your score. Start today, and you’ll have a head start now rather than when you find yourself wishing you’d done it sooner.

How To Clean Up Your Credit Report

1.  Get A Free Copy Of Your Credit Report

Free weekly credit reports have been extended for another year, so there’s no reason to hold off here. The first step to cleaning up your credit report is to have the report in front of you. Sites like CreditKarma and FreeCreditReport make it easy to see your report and understand how you can impact it.

NOTE: You’re going to want to pull the whole credit report, from all three bureaus – not just the scores.

2.  Thoroughly Check Your Credit Report(s)

Depending on your credit history, this could take a while, or it could be pretty quick. Either way, making sure that your information is correct and up to date is critical to building, rebuilding, repairing, and maintaining good credit.

Since lenders can choose which bureau they send info to, and how often, there will be slight differences on each report and that’s normal. But when you next apply for a loan or credit, different lenders look at different reports, so an error on one may not come up on another and you want to be prepared if the lender comes back to you with something like that.

3.  Resolve Errors By Filing A Dispute

Easy fixes: Credit inquiries stay for two years, but missed payments, delinquencies, and tax liens can stay on your report for seven. If it’s been longer than legal timelines, these items should have done what’s called “aged off” and not be on your report anymore.

You also want to look out for items that are flat-out inaccurate, such as your name and address, or worse, someone else’s name on your report, along with accounts you did not open yourself.

So be sure to get those errors corrected right away. You can dispute directly with each of the credit bureaus. If your dispute is valid, they are legally obligated to correct your report. It’s easy to dispute, by the way. You can do so online or via mail.

TransUnion Consumer
Dispute Center
P.O. Box 2000
 Chester, PA 19016
Equifax Information Services P.O. Box 740256 Atlanta, GA 30374Experian P.O. Box 4500
 Allen, TX 75013

In your letter (or in the form online), explain what information you think is inaccurate and why you’re filing the dispute. Ask for the error(s) to be removed or corrected, and try to include any evidence you have that can be used to back up your claim (payment receipts, for example). Credit bureaus have 30 days to review and take action, so make sure to check again to ensure they followed through.

Cleaning up your credit report today will ensure your credit is ready for your next goal, no matter what time of year it is, so be sure to stay on top of it all year round!

How Does Social Media Affect Financial Decisions?

Social Media Affects Financial Decisions

Social media influences society in an assortment of ways. Within the past decade, related platforms have swayed elections, outed celebrities’ poor behavior, and controlled much of the public discourse. It even has a significant impact on people’s moods.

Therefore, it’s no surprise that social media also affects many US citizens’ financial decisions. But how much clout do Facebook, Twitter, Instagram, Snapchat, and all other platforms carry regarding money?

This blog will examine social media and its sway over financial decisions:

Social Media’s Financial Influence is Generational

In 2021, consumers gather financial product information from places such as Facebook. They might double down with a blog to inform themselves more.

However, the stats skew toward proceeding with caution with regards to trusting sources. Only 23% of surveyed consumers are very confident that social media information about financial products is accurate and reliable.

Furthermore, consumers only click on social media financial product advertisements 15% of the time. This number pales compared to the 34% of the timepeople click on ads for other items.

It does appear that older consumers are responsible for swaying these percentages. Millennial – and younger – consumers have far more confidence in the financial information they access on social media. They’re also likelier to click on advertisements for relevant institutions.

This difference between generations probably results from familiarity and comfort with technology. It also likely results from more eagerness to learn about what’s out there in the world of finance.

People Are Spending More Recklessly Because of Social Media

Financial decisions aren’t solely based on products from a bank, an accountant, or overall investing decisions. Finances are involved whenever somebody spends money.

In that vein, social media brings with it some negatives. Namely, 35% of respondents to one survey claimed to spend more money than they could afford to share experiences with friends. Moreover, these decisions were directly influenced by what they saw on social media.

In bringing this blog back to the generational theme, younger people were more impacted by the above problem. 48% of Millennials and 41% of Gen Z fell victim to overspending because of social media’s somewhat nefarious influence.

People must keep in mind the social media often paints a very one-sided picture of people. Sure, your friends could be vacationing in Spain—but they might be maxing out their credit card to do so. Or they’re neglecting their retirement savings.

Social Media’s Impact on Your Finances Depends on How You Use It:

Social media is a double-edged sword for finances. Provided you allow it to influence overspending because you want to fit in with your friends, it will turn into a negative by accumulating credit card debt.

Conversely, social media brings with it the following financial advantages (if you do your research):

  • Find better deals on products you need
  • Receive discounts from your preferred stores
  • Market a crowdfunding campaign
  • Learn about DIY ideas instead of spending on a service
  • Perform product research to make purchases that bring you value

It’s through the above methods that social media can become a positive force for your financial future.

Financial Advantages of Having a Credit Card

Shopping with a credit card

When it comes to personal finance, credit cards tend to have a bad reputation. If you were to conduct research, you’d find money blogs and financial experts advise consumers to steer clear of using plastic. In all fairness, this advice is based on the experiences of individuals who misused their credit cards and consequently suffered financially. However, the truth is that when used correctly, credit cards have several advantages. Continue reading to learn more. 

Establishes Credit History

Credit is essential for purchasing products and services. It is a summary of your financial accounts, assets, and money management practices. Whether you’re trying to apply for car insurance or a home loan, your credit history is a determining factor in whether you get approved and how much assistance you can receive. As you might imagine, a person without a credit history doesn’t give creditors, lenders, and service providers much to use. 

Credit cards are one of the first types of financial products you can use to establish a credit history. Many credit card companies have fewer guidelines than banks allowing applicants with no credit history to apply easily. From the moment you get approved, the account is added to your credit report. Creditors then maintain a record of your payments by reporting to the three major credit bureaus every month. 

Builds Credit

It’s not enough to have a credit card on your credit report. If you’re going to get approved for loans and save money on other products and services, you need a favorable credit rating. While several factors determine your rating, making timely payments is at the top of the list. When you use money management practices and tools that help you pay your Sears credit card or your Capital One Mastercard on or before the due date, this is reported to credit agencies, reflecting positively on your behalf. 

Reward Programs

Credit card companies go to great lengths to attract new audiences to their products. Such marketing tactics often include offering rewards programs in addition to a line of credit. Depending on the type of credit card you apply for, you could receive percentages off your purchases, cashback, points towards future purchases, and frequent flyer miles. Some credit cards even offer travel, product, and payment protection insurance. 

Covers Financial Emergencies

While having an emergency savings account is recommended for financial protection, your credit cards can be another nest egg. Should an unexpected expense arise that you don’t have enough money to cover, you can charge it to your card and repay the balance in installments. Using credit cards to cover financial emergencies ensures you can handle the situation instantly to avoid further consequences. 

Fraud Protection

Financial theft and fraud happen all the time. Criminals gain access to valuables and use them to fund their own interests. Victims are left to pick up the pieces. While the odds of retrieving a wallet full of cash are improbable, credit cards are a lot easier. Once you contact your creditor and report a stolen card or suspicious activity, they will provide protection, including closing the card, issuing a new card, and covering the costs of any purchases you didn’t advise. 

Acceptability

For those who love to travel internationally, credit cards are your best friend. It’s a lot easier than trying to acquire local currency. Since most credit cards are accepted everywhere, you won’t have an issue paying for anything from your airline tickets to souvenirs. 

If you held off on applying for a credit card because of all the bad press they get, it’s time to reconsider your decision. Of course, credit cards can cause issues if you take on more than you can afford, max them out, miss monthly payments, and allow fees, penalties, and interest to accrue. However, if you use them to make wise purchases, keep the balances under 35%, and make timely payments, the skies are the limit. If the above financial advantages have persuaded you to want a credit card, ensure that you do your due diligence to select a card that is most convenient for you. 

3 Ways the Internet Has Improved Personal Finance

The internet is good for a lot of things and makes our lives much easier. It makes for easier communication, easier shopping, easier research and so much more. It has had a wide-reaching impact on just about every industry out there, including personal finance.

This article is going to look at three huge ways that the internet and technology itself have pushed the personal finance world forward and made it easier and more accessible for everyone. Without any further ado, let’s check them out!

Helps People Build Knowledge

One of the best parts about the internet as a whole is simply the massive amount of information that it holds. Whatever you are curious about learning or knowing, you can find out about it on the internet. In fact, there are nearly 2 billions active websites on the internet, many of which are informational in nature.

So while learning about finance used to take purchasing and reading books or attending courses, not anymore. There are dozens of different websites out there that can help you learn about the ins and outs of personal finance. Some will teach you about savings, some will host great discussion about finance, a few will teach you about investing and many others will teach you just about anything else you could ever need.

These resources make it easy to learn about finance, for free, with nothing but your phone or computer. While it might take some time, the internet has made it more accessible than ever to learn about finance.

Allows For a Whole New Way to Borrow

In addition to education, the internet has made it a lot easier to borrow money as well. Getting a loan is something most of us will need to do at least a few times in our lives, and it can be a big choice. As a result, we need to put a lot of thought and research in it. Thankfully, the internet makes it simple to see reviews of potential lenders, as well as making it simple to discover what type of loan is right for you.

Also, on top of being able to help you research loans and lenders easier, the internet has also provided us with a new way to get a loan. Several online lenders have come about that make it quicker, easier and cheaper to secure a loan than ever before, all from the comfort of your own home.

If you want to learn more about online loans or secure one, be sure to visit QuickLoans.net.

Software and Apps Have Increased Efficiency

Advancements in the internet have led to a variety of apps and software to come into existence. These apps and software come in all shapes and sizes, and there are dozens that can help you in your personal finance journey.

Some will make budgeting on the go as easy as possible, others will let you check bank accounts in seconds, and some will even help you automatically save or invest money. Best of all, many of the best finance apps out there are completely free to use, so there is no reason not to download them and use them daily.

In conclusion, just like it has advanced many industries, technology and the internet has done a lot for the world of personal finance. It has made things simpler, more efficient and more streamlined than ever before. As technology and the internet continue to improve and come out with new innovations, it will only continue to improve the personal finance industry.

The Beginner’s Guide to Managing Money

There are people that were born to manage money, but for many others it’s a tough task and it can end up causing people’s finances to spiral out of control pretty quickly. Managing money is as simple as you make it, and as soon as you hit that age when your money is your own responsibility, then that’s when you’ll want to get on top of it straight away and learn how to manage it appropriately. There are many tips to follow that will help you manage your money better, and below we’ll look at some of the most important things to consider to ensure you stay financially sound.

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Create a Spreadsheet

Your first step when managing money is to create a spreadsheet on your computer, as it will help you keep track of all of your finances so you’ll be able to see where you are as the months go on. On your spreadsheet, you should have information on your monthly expenditure and any income you receive. Doing this will give you an idea of how much you are spending on things, and you’ll be able to allocate sums of money for whatever you want. You’ll also be able to see how much money you can save, and what you can cut back on in future months to increase your savings. It’s important that you go into as much detail as you can when it comes to expenditure, such as haircuts, gym memberships, takeaways, and many other costly things just so you can keep on top of it all.

Don’t Spend Money On Items That Are Unneeded

Allocating yourself a sum of money every month that will allow you to spend it on what you want is a good start, but as soon as that money is gone, don’t spend any more money on unneeded items. It’s nice to treat yourself to some new designer clothes now and again, but there’s nothing wrong in buying unbranded clothes either. Ask yourself if the item you are looking to buy can be purchased cheaper, or if it is even needed at all.

Set Yourself Monthly Saving Targets

There is nothing better than earning money and having access to it in your bank whenever you want it, which is why setting monthly saving targets will benefit you greatly. Not only will it benefit you by giving you savings, but it will also make you feel good about yourself knowing you have worked hard to earn every penny. You will quickly realise that budgeting and managing your money efficiently has got you where you are.

The above are just a few of the basic, but most important tips when it comes to managing your money efficiently. You’ll find there are plenty of other tips to follow, and depending on how serious you are about managing your money will depend on which tips you take advantage of. Keep your money management simple, and you will find your credit report will benefit from it in the long run.