Debt to Income Ration as Important as Credit Score

By now you know your three-digit credit score is a very important number in your financial life, but did you know there's also a two-digit number that can be just as significant?
It's your debt-to-income ratio, and it can shed a light on, and help you better understand, your true financial picture.
The good news is, getting this number doesn't cost you a penny, and it can be calculated in just a few minutes at your kitchen table.
So, if you think getting insight into your financial life requires sifting through your retirement investments, reading through every fund prospectus and tallying your expenses to the penny, think again.
It's true that nitty-gritty details can make a difference, but you can get a fairly accurate understanding of your financial picture by spending just a minute or two calculating your debt-to-income ratio. By knowing the ratio -- and how to improve it -- you can increase your chances of getting a better mortgage, a better car loan and even better credit card rates.
DTI explainedYour debt-to-income ratio is exactly what it sounds like: the amount of debt you have in the form of mortgages, car loans, student loans and credit card debt, as compared to your overall income.
To calculate your overall debt-to-income ratio, sometimes known as a back-end ratio, add up all of your monthly debt obligations -- often called recurring debt -- including your mortgage (principal, interest, taxes, and insurance) and home equity loan payments, car loans, student loans, your minimum monthly payments on any credit card debt, and any other loans that you might have. Do not include expenses such as groceries, utilities and gas. Take this total and divide it by your gross monthly income from all sources. If you're not good at long division or don't have a calculator handy, go to Bankrate's calculator section to use our debt-to-income ratio calculator.
Note: Some lenders will exclude the mortgage payment from this equation, but they lower the ratio. The concept is the same: it measures your debt load in comparison to your income.
Let's say you and your spouse together earn $83,000 per year or $6,916 per month. Your total mortgage payment is $1,350, your car loans total $365, your minimum credit card payments are $250 and your student loans add up to $300. That equals a recurring debt of $2,265 a month. Divide the $2,265 by $6,916 and you'll find your DTI is 32.75 percent.
In general, you'll want to keep that number below 36 percent -- a threshold that loan officers and credit card issuers often use as a factor when they determine how much they're willing to lend you. "If you go higher than 36 percent, you are on a slippery slope," says Diane McCurdy, a Certified Financial Planner and author of "How Much Is Enough?" Lenders might give you money, she adds, "but they'll give you higher interest rates, and if anything goes awry, they'll sock it to you."
So why is that number so important? It's all about proportion, says Laura Russell, a certified financial counselor with GreenPath Debt Solutions. "You can be making a lot of money every month, but if you've got the debt to match it, that can be a problem," she says. "It's important not to overextend yourself." The higher your number, the riskier it is for lenders to offer you loans -- and the more they'll make you pay for them.
Finding leverageWhile debt-to-income ratios don't have the kind of buzz that credit scores do, they can play a key role in determining if you qualify for a loan and how much you can get. "Your debt-to-income ratio is one of the tools that banks will use to determine whether they'll lend you money for a mortgage, a car loan or a student loan," says Dave Hinnenkamp, CEO of KDV Wealth Management.

Pay Off Debt Quickly

Tax refunds from True Credit by Transunion
Waving a tax refund check at someone who has substantial credit card debt is like taking a Biggest Loser contestant to an all-you-can-eat buffet. It might seem like a form of torture, but all we can say is, resist spending that refund money and apply it toward your outstanding credit debt. Here’s why: you’ll get an immediate return of 18% or more, depending on what the interest rate is on your credit card. If you spend the money on a mortgage payment or home improvement instead and leave the credit debt to grow, you’ll be dogged by ever-increasing interest charges. Like the Biggest Loser contestant skipping the buffet, we recommend not even imagining what you could spend the refund check on.
Paying off debt is more critical this year
Sound like familiar tax season advice? Yes, but the 2009 tax season is different. Banks are tightening credit. Real estate values and mortgage rates might be dropping in some places, but that doesn’t mean credit is any easier to get. So besides paying off credit card balances to prevent having to pay interest charges, you just might be helping your credit score.. Remember, part of what credit bureaus use to determine your score is your debt-to-income ratio. The less available income you have going toward debt, the better for your credit score.
Let’s face it: paying down credit card debt isn’t fun. It’s much more immediately gratifying to spend the money, particularly on something you’ve wanted for a long time (for some of us, that might be a shopping spree in New York, for others it’s the ultimate man cave). Plus, it’s easier to justify spending that money if it’s a necessity rather than a “fun” purchase: a new stove, a new fan belt, new clothes for the kids.
The (almost) painless way to reduce debt
Now, we’re not telling you to let your kids go barefoot or drive in something that puts your life at risk. However, the sooner you pay off credit debt, the more flexibility you have to spend the money on other things. A refund check from Uncle Sam is an almost painless way of making a substantial inroad. (Yes, we feel the pain of not being able to spend the money, too.) Let’s say your outstanding credit balance is $13,000 and your refund is $800. How many months of paychecks would it take you to apply that much to your credit card balance? Isn’t it easier now to just wipe off a substantial percentage in one fell swoop? Won’t that make you feel better—at least as good as using it to take a vacation in Hawaii?
If images of Oahu are still hula dancing in your brain, do the numbers. Take a hard, cold look at what you still owe now and how much less you’ll have to pay back (and worry about interest on) once you apply that refund check to it. Feel better now?
Next Year: No Refund?A parting word: as much as you might look forward to your refund, for next year, consider adjusting your withholding to get a smaller refund (or none). Then you’ll have

How to Handle Abusive Debt Collectors

The debt collection industry is one of the most complained-about industries to the Federal Trade Commission (FTC). From 1999 to 2001 ( the latest years available) the debt collection industry was the #1 complained about industry in the USA. This is because, despite the Fair Debt Collection Practices Act, which regulates debt collection activities and behavior, too many debt collectors are poorly trained and informed and work in an industry with a very high turn over rate.

Another reason debt collector’s use abusive and use illegal tactics against debtors is that most debt collectors know they will get away with their illegal tactics and behavior. These are some of the reasons why. (1) most consumers are uninformed about debt collections laws; (2) it’s hard to prove the behavior occurred and it’s hard to prosecute it; and (3) there is a legal loophole in the law that allows debt collection agencies who get into trouble to simply close their current operation and create a new company and identity, and thus avoid any existing injunctions and continue to operate in the same manner.

What should you do if a debt collector is intimidating or harassing you?

Achieve Security will try to help you in several ways that are effective. If you notify us, right away, who called and what number they called you from we will get the proper information over to them that should help slow the calls.

You can also program your phone to forward the calls to our creditor hot line at 630-536-5250. This will re-route all of the calls to us. If you do not have the call forwarding feature on your phone, call your local phone company to inquire about it. It normally is only a couple of dollars each month.

Ultimately you do have the power to make sure they do not tread upon your rights. If you want to follow through with making a complaint we will help you with that.

1) Find out if the collector is violating the FDCPA or your state’s laws. If so, send the collector a certified letter, return receipt requested, telling them that you believe they are in violation of the FDCPA or your state’s laws.
2) You can file a complaint online at http://www.ftc.gov/ The FTC is the body in charge or regulating debt collection agencies. They will sanction the collection agency if it receives enough complaints from consumers
3) You can also gather evidence by recording phone conversation with the debt collection agency. If you can prove the debt collector used illegal tactics you can sue for damages under the FDCPA
Achieve security provides you a copy of the FDCPA on our newsletter each month. You can also find other information on our blog each week at our home page http://www.achievesecurity.com/

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