Most moneylenders in Singapore use the debt to income ratio as a way of measuring an individual’s ability to manage their debt repayments and other payments in each month. This is intended for comparing your debt amount you owe against your overall income.
Having a good credit score may always not guarantee that you will get a loan from a bank or other money lending institutions. Often Banks reject loan applications from individuals whose debt-to-income percentage are high. Therefore, it is important for you to know what debt-to-income ratio is and why it is as important to you as a borrower
The DTI ratio is a key factor that most banks and moneylenders consider before disbursing loans. Nonetheless, it isn’t part of an individual’s credit score. DTI is worked out by dividing the total monthly debt payments by total monthly earnings.
When your debt-to-income ratio is more than 36%, it means that you have a high DTI. Moneylenders and banks use the DTI to establish your ability to pay back your payday loan. Here are some strategies to help you lower your DTI ratio.
Clear Your Smaller Debts First
It is advisable that you start by paying off all your smaller debts. This is regardless of the amount, from hundred dollar credit card balance to any other small loans. Keep in mind, that even smallest debt repayments are indicated on your loan account, which thus raises your DTI ratio. Make sure you pay off the small debts in full. When you follow this strategy, you are then able to decrease your debt much faster such that in the end, it will lead to your DTI being lowered.
Also, you need to consider debt settlement as a key option for you to reduce the high debt-to-income ratio. When you take on a debt settlement plan, you are able to give a lump sum of money to your lenders. This way you will reduce the actual payday loan amount you owe.
This also contributes positively to reducing your DTI ratio thus giving potential moneylenders’ confidence in your ability to repay the loan taken. This will also make them approve your loan applications in future easily and fast.
Use A Low APR Card To Repay Credit Card Debt Of The Higher APR Card
The Annual Percentage Rate (APR) is the actual interests you pay each year on your credit card balance. This is the right way to consider interest rates charged. Thus you should avoid examining the introductory plan which allows you to pay lower interests on your credit card balance.
Your credit card issuers always give low APR cards to individuals who have a good credit score. You can contact your credit card issuers to inquire about the lower APR card. Once you receive your low APR card, make sure you transfer the outstanding credit card balance from the higher APR card to the new card that has a low APR.
Once you do this you will end up paying lower rates thus reducing debt. This also leads to lowering your DTI ratio. When your credit score is bad, credit card issuers may not give you low APR card. In such cases, you may approach legal moneylender for a small loan then use it pay the credit card outstanding debt with high APR.
Refinance Your Loan
When you have a high debt which may include home loan, auto loan and another loan type, you could try refinancing it. For this, you need to contact your creditor and ask for your repayments to be extended to a term that is to lower the debt instalments for each month. And lower the debt-to-income as well. Approved moneylenders are said to offer loans of up to $20,000 though some may give more. You need to approach legal lenders with a payday loan application to see the loans they can give you.
You can also transfer your loan to a plan you are able to pay using a credit card which will help you pay one of the smaller debts you owe using the cash advance option. Despite the fact that the amount you owe stays the same, your debt instilment for each month are greatly reduced after you have closed one instalment account
Withdraw Money From Your SRS Or CPF Account To Pay Down Larger Or Smaller Debts
The Supplementary Retirement Scheme (SRS) is useful when you are cash-strapped and can’t get payday loans from banks. Therefore, you need to think of withdrawing money from CPF or SRS account. But, you should know the cash withdrawn from your SRS account will be taxed. So weigh your options before taking funds from the CPF or SRS.
You should draw a plan to ensure the DTI is successfully lowered. Also look for strategies that will work for you then follow it diligently.
Increase Your Income
In order for you to increase your monthly earnings, you need to consider taking a second job. There are many job offers in Singapore today hence do a good such for a job that will not affect your usual 8-5 job timing. Any employment that increases your earnings for each month will positively assist in doing away with your debt easy and fast. It will also help reduce your debt-to-income ratio on your personal finance.
Asking for a pay rise will also increase your income level and it’s also a lot easier for you to do. You may also consider turning your hobby into a business, this way you are able to bring in more money. The goal is to offset all your urgent debt you owe and in turn, reduce your DTI ratio.
Debt-to-income ratio-DTI is not part of your credit score. It is instead a ratio that banks and moneylenders use to establish your ability to pay back the loan taken. It is advisable that you start by paying off all your smaller debts regardless of the debt amount. You could also contact your credit card issuers for the lower APR card. Once you receive it, make sure you transfer the outstanding credit card balance from the higher APR card to the new card.