How to Improve Your Debt-to-Income Ratio Before Applying for a Loan

2 February 2026

If you’re thinking about applying for a mortgage, car loan, or personal loan, there’s one number that can make or break your chances: your debt-to-income ratio (DTI). Lenders look at this number to determine how much debt you have compared to your income. A high DTI can send red flags, making it harder to get approved for a loan—or at least one with favorable terms.

But don’t worry! If your DTI isn’t where it needs to be, there are steps you can take to improve it. In this guide, we’ll break it all down in a simple and engaging way so you can boost your DTI before applying for a loan.

Let’s dive in!

What Is Debt-to-Income Ratio (DTI) and Why Does It Matter?

Your debt-to-income ratio is the percentage of your gross monthly income that goes toward paying debts. Lenders use it to assess whether you can handle additional debt without financial strain.

Here’s the simple formula to calculate your DTI:

> DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

For example, if you earn $5,000 per month before taxes and your monthly debt payments total $2,000, your DTI would be:

> (2,000 ÷ 5,000) × 100 = 40%

What’s a Good DTI Ratio?

Generally, lenders prefer a DTI of 36% or lower, with no more than 28% going toward housing expenses. Anything above 43% is considered risky and can make loan approvals challenging.

6 Ways to Improve Your Debt-to-Income Ratio

If your DTI is too high, don’t panic. Here are some effective strategies to lower it before applying for a loan.

1. Pay Down Existing Debt

One of the most effective ways to lower your DTI is to reduce your outstanding debt. Start by tackling high-interest debt like credit cards and personal loans. The faster you pay off these debts, the lower your DTI will be.

How to Do It:

- Focus on high-interest debt first (a method known as the avalanche method)
- Make more than the minimum payment on credit cards
- Put extra income toward debt payments instead of unnecessary expenses

Even small additional payments can make a big difference in reducing your debt load over time.

2. Increase Your Income

If reducing debt isn’t enough, boosting your income can also help balance the equation. Since DTI is based on income and debt, earning more money while keeping your debt the same will naturally lower your ratio.

Ways to Increase Your Income:

- Ask for a raise if you’ve been performing well at your job
- Start a side hustle like freelancing, consulting, or selling items online
- Work overtime or take on extra shifts (if possible)

A slight bump in income can push your DTI in the right direction and improve your loan eligibility.

3. Avoid Taking on New Debt

If you're planning to apply for a loan soon, now is NOT the time to rack up new debt. Any additional loan or credit card balance will increase your DTI and make you look riskier to lenders.

What to Avoid:

- Opening new credit cards
- Financing a new car
- Taking out personal loans

If possible, hold off on major purchases until after your loan is approved.

4. Refinance or Consolidate Debt

Debt consolidation can be a great way to lower monthly payments and reduce your DTI. By consolidating multiple high-interest debts into a single loan with a lower interest rate, you may be able to reduce your monthly payments significantly.

Options to Consider:

- Balance transfer credit cards with 0% interest promotions
- Debt consolidation loans with lower interest rates
- Refinancing student loans or car loans for better terms

Just be careful: If you extend the repayment period, you may end up paying more in interest over time.

5. Cut Unnecessary Expenses

If you’re serious about improving your DTI, trimming unnecessary costs can free up extra cash to pay down debt faster.

Easy Ways to Cut Expenses:

- Cancel unused subscriptions and memberships
- Limit eating out and expensive coffee runs
- Reduce streaming services (do you really need Netflix, Hulu, AND Disney+?)
- Shop smart—compare prices and use coupons or cashback apps

The money you save can go directly toward your debt, helping to bring down your DTI much faster.

6. Make Larger Payments on Fixed Debt

If you have loans with fixed monthly payments (like student loans, auto loans, or a mortgage), making larger or additional payments can reduce your total debt amount more quickly.

How to Do This Without Hurting Your Budget:

- Send an extra payment each quarter
- Round up payments (if your car payment is $275, pay $300)
- Apply tax refunds, work bonuses, or unexpected income toward debt

Even applying an extra $50 or $100 per month can make a noticeable difference over time.

How Long Does It Take to Improve Your DTI?

There’s no instant fix, but the sooner you start, the sooner you’ll see results. Depending on your financial situation, it could take a few months to a year to lower your DTI enough to qualify for a loan with better terms. Consistency is key—stick with the plan, and you’ll get there!

Final Thoughts

Your debt-to-income ratio plays a huge role in whether you get approved for a loan. The good news? You can take control of your finances and improve your DTI by paying off debt, increasing your income, avoiding new loans, and cutting unnecessary expenses.

A lower DTI doesn’t just help with loan approvals—it also gives you peace of mind and greater financial stability. So, start making small but impactful changes today, and you’ll be in a much better position when it’s time to apply for that loan!

Got questions? Drop them in the comments—we’d love to help!