Why Debt-to-Income Ratio Matters

A high debt-to-income ratio can torpedo your chances for a loan. Vitalii Vodolazskyi/Shutterstock

Many Americans struggle with debt. But this debt can hinder personal finances in more ways than one. That’s because if you have too much debt in relation to your income, it might keep you from qualifying for a loan.

The number determined by this relationship between debt and income is called the debt-to-income ratio (DTI). And it can determine your financial future. Here’s why it’s so important and what you can do about it.

Understanding Debt-to-Income Ratio

According to Wells Fargo, more than 40 percent of Americans are trying to find ways to overcome debt to help their personal finances. The two vital numbers that affect financial health are credit score and the DTI ratio. And although most people know that a good credit score is vital, many don’t realize a DTI can nullify it.