One of the most important financial metrics that lenders evaluate before approving a loan is your Debt-to-Income Ratio (DTI). A high DTI signals that you might be overburdened with debt, reducing your chances of securing a new loan or getting favorable interest rates. Whether you’re planning to apply for a personal loan, home loan, or credit line, maintaining a healthy DTI is key to improving your financial credibility.
In this blog, we will cover:
- What is the Debt-to-Income Ratio?
- How to calculate your DTI?
- Why DTI matters for loan approvals?
- Top expert tips to keep your DTI within a healthy range.
What is Debt-to-Income Ratio?
The Debt-to-Income Ratio (DTI) is a financial metric that compares your total monthly debt obligations to your monthly income. It helps lenders assess your ability to manage additional debt responsibly.
Formula to Calculate DTI
DTI=(Total Monthly Debt Payments/Total Monthly Income)×100
For example, if your monthly income is ₹80,000 and your total monthly debt payments (including EMIs, credit card dues, and loans) are ₹30,000, your DTI ratio will be:
DTI = (30,000/80,000)×100 = 37.5%
What is an Ideal DTI Ratio?
| DTI Range | Financial Health | Loan Approval Chances |
| Below 30% | Excellent | High approval chances with lower interest rates |
| 30% – 40% | Moderate | Approval possible, but rates may be slightly higher |
| 40% – 50% | Risky | Lenders may hesitate or offer loans at higher interest |
| Above 50% | Poor | High chance of loan rejection due to excessive debt burden |
RupeeQ Tip – A DTI below 30% is ideal for securing loans with the lowest interest rates. If your DTI is above 40%, work on reducing debt before applying for a new loan.
Why is Maintaining a Healthy DTI Important?
A Low DTI Increases Your Loan Approval Chances
Banks and NBFCs prefer borrowers with a DTI below 40%, as it indicates that you have sufficient income to manage your existing debts while taking on new ones.
Helps Secure Lower Interest Rates
A lower DTI indicates financial stability, making lenders more willing to offer lower interest rates and better loan terms.
Reduces Financial Stress
Managing your debts within a healthy range ensures you can comfortably meet your EMI obligations without feeling financially overburdened.
Top Tips to Maintain a Healthy Debt-to-Income Ratio
Limit Your Borrowing – Only Take Loans When Necessary
One of the simplest ways to maintain a healthy DTI is to avoid taking multiple loans at the same time.
- Prioritize essential borrowing such as home or education loans.
- Avoid taking personal loans or credit lines for discretionary expenses like vacations or gadgets.
- Plan big-ticket expenses well in advance instead of relying on credit.
Example
Neha, an IT professional, had a DTI of 35%. She planned to buy a new car but instead of taking an auto loan, she saved ₹3 Lakhs over a year, reducing the loan amount required and keeping her DTI below 40%.
Pay Off Existing Debt Before Applying for a New Loan
Before taking on new debt, try to clear smaller loans or high-interest credit card dues.
- Focus on closing short-term loans and clearing credit card balances.
- Consider making lump sum prepayments on personal loans to reduce EMIs.
Example
Amit had a home loan EMI of ₹20,000 and a personal loan EMI of ₹8,000, making his total monthly debt ₹28,000. Before applying for a car loan, he closed his personal loan early, reducing his DTI and increasing his loan approval chances.
Increase Your Income to Improve Your DTI
If reducing debt isn’t an immediate option, increasing your monthly income can help lower your DTI percentage.
- Take up freelancing or part-time work.
- Look for salary increments or career advancements.
- Invest in passive income sources such as rental property or dividends.
Example
Ravi, a software engineer, had a DTI of 42%, making it difficult to get a home loan. He started a freelance coding gig, earning an additional ₹20,000 per month, reducing his DTI to 35%, improving his loan eligibility.
Avoid Maxing Out Credit Cards – Keep Credit Utilization Low
High credit card usage increases your monthly debt burden, impacting your DTI and credit score.
- Keep your credit utilization below 30%.
- Pay off credit card bills in full each month.
- Use credit cards for essential expenses only.
Example
Sameer had a credit card limit of ₹2 Lakhs but was utilizing ₹1.5 Lakhs monthly. His DTI remained high due to the unpaid balance. By reducing credit card expenses and paying dues fully, his DTI and credit score improved.
Consider a Debt Consolidation Loan
If you have multiple high-interest debts, consolidating them into a single personal loan with a lower interest rate can reduce your EMI burden and improve your DTI.
- Transfer high-interest credit card balances to a personal loan with lower interest.
- Consolidate multiple EMIs into a single lower EMI loan.
Example
Shweta had three active loans (personal loan, credit card EMI, and car loan) with a total EMI of ₹40,000. By consolidating them into a single loan with an EMI of ₹28,000, her DTI reduced from 50% to 38%.
Use RupeeQ ACE to Monitor Your Debt-to-Income Ratio Regularly
RupeeQ ACE (Advanced Credit Evaluation) helps borrowers track their DTI ratio, credit utilization, and loan obligations in real-time.
- Get personalized recommendations on how to reduce DTI.
- Identify loan prepayment opportunities to lower overall debt burden.
- Monitor credit score changes and loan eligibility insights.
RupeeQ Tip – Check your DTI ratio every 3 months using RupeeQ ACE. If your DTI increases above 40%, consider making a prepayment to bring it down.
Final Thoughts on Maintaining Your Debt-to-Income Ratio
A healthy DTI ratio is crucial for maintaining financial stability and securing better loan terms. Follow these strategies to keep your DTI in check:
- Limit unnecessary loans and credit card spending.
- Pay off existing debt before taking new loans.
- Increase income through salary hikes, freelancing, or investments.
- Avoid maxing out credit cards—keep utilization below 30%.
- Consider a debt consolidation loan if managing multiple EMIs.
- Use RupeeQ ACE to track and optimize your DTI ratio regularly.
Want to check your current DTI? Use RupeeQ’s financial tools today and stay in control of your borrowing!
