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For a conventional loan, lenders generally prefer a DTI of 42% or less, with your mortgage payment included. DTA requirements are different for other types of loans, like FHA and VA. Your DTI alone won't determine whether you qualify for a loan or not, so the exact number is less important than knowing what kind of debt you have and how it can affect your loan options.

What is included in the debt-to-income ratio?

Most types of debt are included in your DTI, but some aren't. It can be helpful to know which is which so you can focus your efforts on getting out of debt in the most effective way.

Debt included in DTI

• Your auto loan is “secured debt” because the lender has the car as collateral. If you don’t pay your loan, the lender can repossess the car. It’s more challenging to get approved for auto loans than credit cards, so having a car loan can be a point in your favor.
• Credit card debt is considered unsecured debt because there is no collateral for the bank to repossess. Too much revolving credit card debt—the amount you don't pay off each month—can affect your loan approval.
• A student loan is another form of unsecured debt. There’s nothing inherently bad about a student loan, as long as you show a track record of making payments on time. Unfortunately, student loans can be significant and can take years to pay off. For this reason, they might affect your ability to qualify for a mortgage. Learn more about buying a house with student loans.
• Payday loans usually don't show up on your credit report. But if you don’t pay the loan and the company reports it, that can show up on your credit report. Interest rates are also very high, and missed payments can quickly add up, affecting your DTI and possible mortgage approval.
• Alimony or child support that you pay as part of a divorce decree, along with any personal loans, will also be counted as part of your DTI.

Debt not included in DTI

• Medical bills or debt
• Mobile phone bills
• Utility bills
• Rent

Now that you have a better handle on what type of debt you have, you can take steps to reduce it. But before you start cutting up your credit cards and calling every debt relief agency that runs ads on late-night TV, make sure you understand how such services work.

What you need to know about debt relief services

Some debt relief agencies are nonprofit organizations that offer guidance for a low cost or no cost. Others are for-profit businesses that charge you a fee—and some are scams that can't deliver what you're paying for. It's important to know the difference.

• Credit counseling organizations help you manage your money and debt. In addition to free educational workshops, trained counselors can work with you individually to create a personalized plan that often involves debt consolidation. When you consolidate debt, you move balances to a card with a lower interest rate and make one payment instead of numerous smaller ones. To find a credit counselor, check out the .
• Debt settlement programs are usually offered by for-profit companies. Their approach is to negotiate with your creditors to allow you to pay a “settlement” amount to resolve your debt. This is usually a lump sum payment. To make that payment, the company asks you to set aside a certain amount of money in savings every month. You're usually instructed not to make payments outside this arrangement. Keep in mind: creditors have no obligation to negotiate. Before agreeing to work with a settlement company, read all of the terms and pricing carefully.

If you choose to get outside help, do your research. Find out what services the organization provides, how much it costs, and how long it may take to get the promised results. Get everything in writing, and read any contracts carefully before you sign. Learn more about .

How to get out of debt on your own: take a tried-and-true approach

If you're hoping to buy a home, the first step is almost always to talk to lenders and get pre-approved early. This will give you a professional, inside look at how your debt will affect your home-buying prospects.

If you already know your debt is not where you want it, consider these DIY options for getting it back on track, one step at a time.

1. Figure out your starting point.

Before you can decide the way forward, you need to get clear about where you stand. Collect all of your income statements and bills, and list all of your debts from the smallest balance to the largest.

2. Stop using your credit cards, if possible.

Put a halt on impulse purchases, and pause before buying unnecessary items. After all, you want to get out of debt fast and buy a home. A little sacrifice now can go a long way toward you becoming a proud homeowner!

3. Build a small emergency fund.

This can protect you from the temptation to pull out the credit card if an emergency happens. Consider putting $1,000, or as much as two months of expenses, in a savings account. This will reduce your stress and set you up to start attacking your debt.

4. Tackle debt using the snowball method.

Take your list of debts, organized from smallest to largest, and start paying them off. The short-term goal is to start reducing the list. Here's how it works:

• Identify your smallest balance.
• Make a larger payment on this balance while you keep making minimum payments on your bigger balances.
• Continue this each month until the smallest balance is paid off.
• Begin paying down the next smallest balance until that one is paid off.
• Keep this up until your largest debt is paid off or you've reached a more comfortable level of debt.

Remember, it's not necessary to be debt-free to buy a home. You probably don't need to wait until every balance is paid off before applying for a loan. But many people use this method to pay down their credit cards fast, make their debt more manageable, and get into a better position to qualify for a mortgage.

5. Lower your interest rates.

A lower rate on a credit card or personal loan will save you money in interest and make it easier to pay off your debt fast.

Switch to a credit card with a lower rate. Depending on your credit rating, you may qualify for a lower-interest credit card or one with an introductory rate of 0% for 12 or months or more. If you have a $5,000 balance on a card that charges you 29%, and you transfer the balance to one with 0% interest for 18 months, you'd save more than $1,500 in interest every month. That's extra money you can use to pay down the card.

Get a loan with a lower interest rate. Another option is to get rid of high-interest personal loans. Personal loans often have lower interest rates than credit cards. You may need to put cash in an account as collateral, but it's worth it if you can lower your rate. You may also be able to refinance your car loan or consolidate your student loan if you can find a provider with a lower interest rate by asking banks or credit unions, or search for student loan consolidation companies.

6. Pay more than the minimum.

Anytime you can, pay more than the minimum due for your monthly payments. Look at that $5,000 credit card bill to see how paying more than the minimum can help.

Let's say your interest rate is 15%. If you pay only a minimum payment of $114, it will take more than five years to pay it off, and you'll pay almost $3,000 in interest. If you can increase that monthly payment to $300, you’ll pay off the card in just 19 months, and pay only $600 in interest. Big difference!

Small steps equal big changes

In addition to the steps above, ask yourself if you can make any lifestyle changes to save money, and put that money toward paying off your debt. Consider disconnecting your cable service, cooking at home, brewing your own coffee, or switching to less-expensive hobbies. Remind yourself that spending less now is how you will get out of debt. You won’t need to live like this forever, but you might find you appreciate your new habits!

Getting out of debt can be much more time-consuming than acquiring it in the first place. But when you’re motivated by the dream of homeownership, learning how to get out of debt with diligence and baby steps are the way to go. Each dollar you can save to pay down your debt has you one step closer to your new home.