Managing Your Debt Wisely

Learning to manage debt wisely is an important part of reaching your financial goals. The first step is understanding debt and how to use it to your advantage. Here's how to get started.

 

Not all debt is the same. Before you borrow, it's important to know whether you'll be taking on "good" debt (the kind that helps you reach important life goals) or "bad" debt (the kind that provides no long-term benefit).

Learn more about when it makes sense to borrow.

 

Your debt-to-income (DTI) ratio compares how much you owe each month with how much you earn. It's a helpful way to understand if you may be taking on too much debt. It's a good idea to try to work toward a DTI of 35% or less, which is the ratio that most lenders consider ideal. Here's how you can calculate your DTI.1

 

Your debt plays a key role in calculating your credit score. More than one-third of your credit score is based on your payment history, so paying on time matters. The amount you owe (your balances) makes up 30% of your score, and high balances may lower your score. Learn more about credit scores and how they are calculated.

1 Please note: This calculator is for educational purposes only and is not a denial or approval of credit.

When you apply for credit, your lender may calculate your debt-to-income (DTI) ratio based on verified income and debt amounts, and the result may differ from the one shown here.

You do not need to share alimony, child support, or separate maintenance income unless you want it considered when calculating your result.

If you receive income that is nontaxable, it may be upwardly adjusted to account for the nontaxable status.