You know that less debt is better, but you probably carry more of it than you prefer. According to Experian’s latest data, the average American has a debt-to-income (DTI) ratio of 150%. That means the average person in the U.S. owes 1.5 times more than what they make in a year.
How do you measure up?
If your calculator shows your DTI is out of control, you’re dealing with at least one of the following problems. Here are three things that push up your debt load.
1. The Cost of Living is Too High
The cost of housing where you live has a massive impact on your debt levels. After all, the more expensive real estate is, the more your mortgage or rent will be.
Housing costs are especially bad in Arizona, where home prices rose by 29.5% between 2020 and 2021. Its capital Phoenix saw prices rise by 30% in the same period, which is more than any other city in the U.S.
Housing costs are rising at the same time inflation has bumped up the prices on everyday items. More people are living paycheck to paycheck as a result, which can put you in a tough position. With all your money going towards bills, you might not have savings.
If an unexpected expense arrives, you may have to rely on an Arizona line of credit for help in emergencies. While an AZ line of credit may help in these situations, it will increase your DTI.
2. You’re Not Earning Enough
The cold, hard math of your DTI comes down to two things: your income and your debt payments.
A large paycheck can naturally cover bigger debt and still give you breathing room. But a tiny paycheck can struggle to cover even a single, small AZ line of credit bill.
Unfortunately for many people across the U.S., earning a living wage isn’t always possible. You may even have trouble paying the bills if you have a traditional 9–5 job.
Anyone may need to earn more, regardless of what they do for a living. If the income side of your DTI equation is low, it might be time to upgrade your skills and change jobs.
3. You’re Not Following a Budget
Payday comes and you celebrate with new shoes, tickets to a concert, and treating your friends to a round of drinks on the weekend. Next thing you know, you’ve spent all your money and you need to put the essentials on credit.
Sound familiar? Out-of-control spending is often the culprit of a high debt load.
Reckless spending isn’t the only way a budget-free life can get you into financial trouble. Without a budget, you might forget to set aside money in an emergency fund. Without an emergency fund, you may need to take out an AZ line of credit to cover an unexpected auto repair.
A budget can help you spend with intention, so you set aside enough cash for emergencies and bills.
There are many reasons why your DTI might be high, but high debt loads often boil down to these three issues: cost of living, income, and spending. Figure out which one is at fault and work on lowering your DTI.