CA Explains Debt-To-Income Ratio: Which Sort Of EMI Vs Net Income Ratio is Comfortable For Your Finances | Personal Finance News
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New Delhi: CA Abhishek Walia highlights the importance of tracking your Debt-to-Income (DTI) Ratio to avoid financial stress and debt traps. He advises that whenever someone takes a new loan, they should find out their DTI, not just to ensure they can afford the EMI. Understanding this ratio is key to making smarter and stress-free borrowing decisions.
In a LinkedIn post, Walia said, “If 40% of your salary is gone by 5th,” then one needs to know about one powerful metric called DTI that can help them stay financially secure.
Walia said, “Everyone knows about credit score. Some track savings rate. But almost no one I speak to regularly checks this one powerful metric:> Debt-to-Income Ratio (DTI) = (Total monthly EMIs / Net monthly income) x 100.”
According to Walia, your DTI ratio can indicate whether you are overleveraged, qualify for more loans, or are on the verge of falling into a debt trap.
Giving a simple breakdown of DTI Walia wrote, “DTI under 20% = Excellent, DTI 20–35% = Manageable, DTI 35–50% = Risky zone, and DTI 50%+ = Red alert.”
Walia claimed that if you make Rs 80,000 a month and pay Rs 42,000 in EMIs for house, car, credit card and BNPL, you are already spending more than half of that amount on liabilities alone. An emergency or even a slight decline in income could cause your finances to fall apart. Yet, most people only consider EMIs in isolation rather than the whole picture.
Walia advised against merely asking if a borrower can afford the EMI while they are taking out a new loan. Instead, they should find out their DTI.
Walia said, “Creditworthiness isn’t just about paying on time. It’s about leaving enough room to breathe.” The CA believes that DTI might be the financial metric that really protects people.
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