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What is a “debt-to-income” ratio? Learn more during Financial Literacy Month

Image of a book with financial literacy on the cover and a $100 bill coming out the top

A debt-to-income (DTI) ratio is your combined monthly debts divided by your gross (before taxes) monthly income. This ratio is one way lenders determine what they think you can afford and will help them decide if adding an additional monthly payment is possible.

A good rule of thumb is to try to keep your DTI ratio below 43%. You should try to keep this number lower. By doing this you will have more of your income to use on other things besides payments, such as entertainment, food, travel and savings

The Consumer Financial Protection Bureau has more information on this topic. If you are interested in learning more visit: https://bit.ly/3dlaEyo


What is Financial Literacy?

Image of a book with financial literacy on the cover and a $100 bill coming out the top

Financial literacy is the ability to understand how to make competent choices to manage your financial well-being. When you are “financially literate” you’re able to manage your income and divide it towards multiple goals simultaneously.

Being financially literate is not just about how to pay down debt, but also how to manage your daily financial life, such as savings and investments. While paying down debt is always a good thing, it should not be the only item you focus on. A great way to start is to take a portion of your income and place it into a separate savings account, that way you’re not tempted to use those funds. By doing this, you’ve started your first step on becoming more financially literate. The art of savings is a great skill to have a sound knowledge on, creating ground for financial success.