Fix Your Debt to Income Ratio

Managing your finances is more than just balancing your budget and paying your bills on time. A crucial aspect of your personal financial health is your credit score. A significant contributor to your credit score is your debt to income ratio (DTI). This article will guide you on how to fix your debt to income ratio effectively.

Grasping the Concept of Debt to Income Ratio

Your DTI is a numerical value representing the comparison between your income and your debts. This value is calculated by dividing the total amount you owe by your income. For instance, if your monthly gross income is $6,000 and your total monthly debt payment (home, car, student loan, credit cards) is $1,800, dividing the debt payment ($1,800) by your income ($6,000) results in 30%. This figure is your debt to income ratio.

An online DTI calculator can help you find your ratio. A DTI below 36% is considered healthy as it signifies your ability to pay your bills on time and demonstrates your responsible debt management. However, it’s alarming that Statistics Canada reported an average DTI of 163.2% among Canadians, indicating excessive debt that’s beyond what they can manage.

Steps to Improve Your Debt to Income Ratio

If your DTI exceeds 36%, don’t panic. Here are some effective strategies recommended by financial experts to fix your debt to income ratio:


Track Your Spending: For a couple of months, monitor where you spend your money. This habit will give you a clear picture of your spending habits.

Revise Your Budget: After tracking your spending, revisit your budget. Make debt reduction your top priority and eliminate unnecessary expenses. For example, reducing your daily coffee purchases could save you a significant amount that can be directed towards debt reduction.

Implement the Snowball Method: Start by paying off the debt with the lowest balance or the one with the highest interest rate. Then, use the money freed up from this payoff to settle other debts.

Use Your Savings: Consider using a portion of your savings to reduce your debt. However, ensure you retain enough savings for emergencies and avoid cashing in RRSP’s or pensions, which are protected from creditors.

Refinance Your Home: If you can get a better rate, tap into your home equity to pay down your debt.

Pledge not to take on new debt: Start living a stress-free, debt-free life by following these steps and:

Plan Your Spending: Be mindful of where your money goes.

Save for Big Purchases: Instead of going into debt, save money for expensive items.

Build an Emergency Fund: Even saving a small amount each month can lead to a substantial emergency fund over time.


These strategies should help fix your debt to income ratio. However, if your debt problem gets out of hand, it’s time to seek professional help. Licensed Insolvency Trustees (LIT) are the best professionals to consult. They can offer a full range of solutions tailored to your situation.

If you need professional help, don’t hesitate to reach out to Bankruptcy Canada. We can provide the necessary assistance to help you manage your debts effectively.

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