How to Lower Your Debt-to-Income Ratio: 10 Proven Strategies
A high DTI ratio can block you from mortgages, car loans, and the best interest rates. The good news: DTI is one of the most controllable financial metrics. Here are 10 proven strategies to bring yours down.
1. Pay Off Small Debts First (Debt Snowball)
Eliminating a debt entirely removes that monthly payment from your DTI calculation. Target the smallest balances first — paying off a $500 credit card balance that carries a $25 minimum payment instantly drops your monthly obligations.
2. Make Extra Payments on High-Balance Debts
For installment loans, extra payments reduce your balance faster. Some loans (especially student loans) allow you to request a payment recalculation, which can lower your required monthly payment after you've reduced the principal.
3. Increase Your Income
Since DTI is a ratio of debt to income, earning more lowers the percentage even without reducing debt. Consider:
- Asking for a raise or promotion
- Starting a side hustle or freelance work
- Taking on overtime hours
- Renting out a spare room (documented rental income counts)
4. Refinance for Lower Monthly Payments
Refinancing to a lower interest rate or longer term reduces your monthly payment, directly lowering DTI. This is especially effective with student loans, car loans, and mortgages where rates have dropped since you originated the loan.
5. Avoid Taking on New Debt
Every new loan or credit card balance adds to your monthly obligations. If you're preparing to apply for a mortgage, avoid financing furniture, cars, or other large purchases in the months leading up to your application.
6. Consolidate Multiple Debts
Debt consolidation can replace several monthly payments with one lower payment. A personal loan at a lower rate than your credit cards can reduce both your total monthly obligation and your interest costs.
7. Switch to Income-Driven Student Loan Repayment
If federal student loans are a major contributor to your DTI, income-driven repayment (IDR) plans can significantly reduce your monthly payment. Lenders use the IDR payment amount for DTI calculations.
8. Pay Down Credit Cards Below Minimum Thresholds
If you can pay a credit card balance to $0, the minimum payment becomes $0, removing it from DTI. Even if you can't pay it off entirely, reducing balances lowers minimum payments.
9. Add a Co-Borrower
Adding a co-borrower with income but low debt to your loan application combines both incomes in the DTI calculation, potentially lowering the ratio enough to qualify.
10. Dispute Incorrect Debts on Your Credit Report
If your credit report shows debts you don't owe or inflated balances, dispute them. Incorrect information could be inflating your DTI in lenders' calculations.
How Fast Can You Lower DTI?
Timeline depends on your strategy. Paying off a small debt can lower DTI overnight. Income increases show up once you can document them (typically 1-2 pay stubs). Refinancing takes 2-6 weeks. For mortgage applications, plan to start DTI reduction at least 3-6 months before applying.