What is Debt to Income Ratio?

This ratio determines the proportion of debt as compared to the income an individual generates.

Ideally, your debt to income ratio should not be higher than 30 % as you would then be straining your income.

You see, this means you should not be spending more than 30 % of your income on paying loans / or interest on loans.

The lower this ratio is, the healthier your finances are. If you have a high debt to income ratio, this could have an adverse impact on your borrowing capacity as well. Most banks would prefer giving loans to borrowers who have a low debt to income ratio, as this would imply that they have a large share of their income freely available and can easily afford to repay the bank's loan.

Hence in case your debt to income ratio is too high (say more than 30 %) consider repaying a part of your loans especially high interest loans (e.g. Credit card bills etc.) so that you can save a larger portion of your monthly income and remain financially healthy. 

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