Your debt to credit ratio basically reflects a key piece to your credit worthiness, which in turn is used by creditors for determining the overall risks involved in extending loans to you.

The ratio is quite easy to understand and is calculated simply by dividing your total outstanding debts by your existing credit limit.

For example, suppose the total of all your existing debts is 10000 dollars and your total existing credit availability is 20000 dollars, then the ratio will be 10000 divided by 20000 i.e. 50%, when expressed in terms of percentage.

Now suppose your overall debts reach $ 20000, without a parallel increase in your credit limit, then the ratio will be 20000 divided by 20000 i.e. 100%.

It fast becomes obvious that a lower debt to credit ratio is considered less risky by creditors, whereas a higher ratio is considered relatively more risky. This is simply because creditors know that when you have a lower debt ratio, you tend to be more conservative in your use of debt, they know you aren’t the kind of consumer who is just going to go out and max out a new account just because you can.

It is not surprising then to know that creditors offer lower interest rates to people who have a lower debt to credit ratio and loans are extended at relatively higher rates to people having a high debt ratio.

The exact rates offered may differ from lender to lender, but the logic behind their pricing structure remain fairly uniform.

Lowering your debt to credit ratio may seem to be the obvious right thing to do if you are seeking the best rates possible, but the bigger question is why are you so concerned about fluctuations in the ratio?

The answer is that you are probably a debt user, which means you may likely become a debt “abuser”.

May we respectfully suggest a better way? If you plan to live a more peaceful, debt-free life, you really may want to make substantial changes in your financial practices.

There really is no need for you to apply for loans and credit cards and burden yourself with debt for the rest of your life. Living a debt-free life may not be easy, but when you look at all the benefits that you can have by doing so, the extra effort pays you back in countless ways.

For example, once you are debt free, you will never have to worry about your increasing debt to credit ratio, or your falling credit score. You will never be hounded by collection agents or their harassing, threatening calls.

Considering the multitude of benefits that you can derive by living a debt-free life, we recommend that you immediately give up any inclination for using credit, whether applying for smaller amount loans such as cash loans or large amount loans such as mortgage loans or automobile loans.

To take care of additional fund requirements, you can work to increase your income, something that you can do quite easily if you are really motivated and resolute to live debt free. Many great ideas are provided on our website.

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