The debt-to-income ratio is a major factor that is considered by banks when disbursing loans. However, it is not part of your credit score. It is calculated by dividing your total monthly debt instalments with total monthly income. If the debt-to-income ratio is above 36%, you have a high debt-to-income ratio. Banks use the debt-to-income ratio to determine your ability to repay the loan. Here are few strategies to lower your debt-to-income ratio.

Clear Your Smaller Debts First

You can start by clearing your smaller debts even if it is few hundred dollars of credit card balance or another small loan. Remember, even small debt repayment show on your account, which raises your debt-to-income ratio. Pay off small loans in full. By following this strategy, you will be able to reduce your debt in a faster manner that ultimately also leads to lowering your debt-to-income ratio.

Take a Low APR Card to Pay Credit Card Balance of Higher APR Card

Annual Percentage Rate (APR) refers to the actual interest rate you pay yearly on the credit card balance. It’s the right way to look at the interest rate, and you need to avoid looking at the introductory schemes where you pay lower interest on credit card balance. Credit card issuers offer low APR cards to people with good credit score. Contact credit card issuers and ask for a lower APR card. When you get a low APR card, transfer the credit card balance of higher APR card to your new card with low APR. This way you will pay a lower rate of interest and also reduce your debt that leads to lowering the Debt-to-income ratio.

If you have a bad credit score, credit card issuers might not issue a low APR card to you. In this case, you can approach legal money lender Singapore for a small loan and pay your credit card balance with high APR.

Refinance Your Loan

If you have high debt that includes home loan, car loan or any other loan, you can consider refinancing it. You can contact the creditor and request to extend the repayment term that will lower your monthly debt instalments and also lower your debt-to-income ratio. Licensed money lenders in Singapore are known to give loans up to $20,000 although some lenders in Singapore might give more. You should approach money lenders with your loan request and see how many loans they can offer.

Withdraw Money from Your SRS or CPF Account to Pay down Larger or Smaller Debts

The SRS (Supplementary Retirement Scheme) is similar to the 401K plan in the US. If you are cash strapped and unable to get loans from traditional financial institutions, you should consider withdrawing money from SRS or CPF account. However, you need to do know the amount withdrawn from the SRS account is taxable. So review your options before withdrawing funds from your SRS or CPF account.

To successfully lower your debt-to-income ratio, you need to chalk out a plan and see which strategy will work right for you and then follow the DTI ratio reduction plan diligently.