Your “Debt to Income” ratio is vital for pretty much all large purchases and financial transactions. Whether you are applying for a credit card, buying a car, or looking for a home, the difference between your debt and your income is going to be a key determination in the type of loan for which you will qualify. As important as this number is, you need to reduce the ratio as much as possible and as soon as possible, whether you need it now or not. The faster you can increase your credit score the healthier your financial outlook will be.

The easiest way to reduce the ratio between your debt and income is to pay off your debts and increase your income. Since that is not reality for the majority of people, the next best alternative is to start reducing your debt. This is not usually a fast process, but it is a steady process that will have a positive effect over the long term.

Start by making a chart of all of your debts, including both secured loans and unsecured loans. On your chart, include the balance due, the total credit limit on your account, minimum payment amounts, and interest rates. Although you are usually allowed to pay off your secured loans early, for this purpose prepayment may not be as helpful, so focus instead on your credit cards. Calculate how much you are paying total every month on your credit cards and then use a credit card payment calculator to realistically calculate how much additional money you can afford each month to pay down your debt.

If you can apply an extra $20 every month, then do it. Start with the card that has the highest interest rate and then pay the extra money toward it each month. Once that card is paid off, start paying down the next highest interest rate card with the additional money PLUS the payment amount of the card you just paid off in full.

The process will start slowly but it will gain momentum as your credit cards get paid in full and you can make larger payments on your remaining balances. As your “debt to income” ratio increases, so will your financial health status.