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Debt Ratio

June 28, 2009 by DebtGeniusNo Comments Tweet this post

Debt Ratio

Step 1 - What is your debt ratio? It is how much money you owe compared to your line of credit. A person with a credit limit of ten thousand dollars, who has a five thousand dollar balance, has a 50% debt ratio.

Step 2 - Get your ratio down.
There are two ways to do this: Increase your credit limit or decrease the amount you owe.

Step 3 - Get ready to make some calls…

Increase your credit limit:
It is unwise to apply for credit that you don’t really need, if you’re the type of person who will end up using your new credit line, and therefore increasing your debt ratio. And don’t forget that FICO also looks at how often you’ve applied for credit, and your last application for credit, so if you’ve applied recently or often, this option may not be for you. However, if it has been a few years, find a credit card that offers a competitive rate, apply for it, and then, if you’re approved… don’t use it! Just let it sit there and show FICO that instead of a $10,000 limit you now have a $12,000 limit, and your $5,000 balance/ 50% debt ratio is now a 42% debt ratio. Every bit helps.

Another option is to ask for an increase in your credit limit from lenders you already deal with. In this current economic era, there may be fewer companies offering to extend a limit, but if it is a company you have a good history with, they may offer to increase your limit a few hundred or even a few thousand. As I said before, every bit helps!

Step 4 - Earn some extra money to pay off those debts.

Lower the amount you owe:
Money is tight but look for extra places you can cut out small expenses, and put extra funds towards paying off debt. A major overlooked expense is eating out, try to budget eating out, and pack lunches and snacks which are cheaper at the grocery store instead of the vending machine or local cafe.

If you can’t find a place to trim your expenses, consider a part time job, just for a few months, to pay off a certain chunk of debt. Set a goal and reach it by working at a part time job. You might find one you love, but if not, you know you aren’t staying there for long, just until your goal is reached.

Visit our website for more on becoming debt-free.

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