Spring break is a common time for students, young adults and families alike to take trips that they might not take during the year. Since most schools are off for at least a week, many people use this time to hit the road and travel. Previously, every school seemed to be off the week after Easter. However, spring break is now more heterogeneous. There are only a couple of weeks in March and April when all the schools are off and everyone starts hitting the road. Before you commit to those travel plans and dropping money on your hotel stay, you might want to consider your debt to income (DTI) ratio.
What is a Debt to Income (DTI) ratio and how do I calculate mine?
Your DTI ratio is calculated by first adding up your total monthly debt payments. This could include your home mortgage or rent, car payment(s), student loans and any other recurring charges. Then, you take your total monthly debt obligation and divide it by your total gross monthly income to get your DTI ratio.
When is a DTI Ratio important?
While it’s generally a good financial practice to keep your DTI ratio as low as feasible, it becomes especially important if you plan on buying a house in the next year or so. Unless you have the financial savings to pay cash for your house (in which case you may not need to be as concerned with spring break budget travel tips), you’re going to have to qualify for a home mortgage. Most mortgage lenders calculate 2 different DTI ratios when you’re in the process of buying a home.
- Front-end DTI ratio
To calculate your front end DTI, take your total housing costs (principal, interest, taxes, insurance, and other housing costs like HOA fees) and divide it by your monthly income. This is calculated by only taking into account the debt associated with your mortgage and housing costs. So no other debts would be taken into account.
- Back-end DTI ratio
To calculate your back end DTI, you will need to take all your monthly debt payments and divide it by your total monthly income. This is calculated using the monthly payment amounts of ALL of your outstanding debt (including credit cards).
If you’re planning on buying a house soon, you’ll want to keep your back end ratio lower than 36%. A great way to help with that is to make sure to avoid breaking the bank on your spring break vacation.
Spring Break Travel Tips
Here are a few spring break travel tips to save your DTI ratio before you even get to your destination:
- Book Early – travel prices tend to go up in price as you get closer to the date. If you’re reading this and planning for spring break 2020, it may be too late, but consider that for 2021!
- Consider your destination – In my years of traveling, I’ve found that the absolute easiest way to bust your budget is to go to the most popular travel spots of that particular season. For Spring, think Cabo, Miami or Cancun. While these places are popular for a reason, consider picking somewhere else if you’re trying to avoid raising your DTI ratio!
- Be flexible with your dates – if you fly out on a Friday or Saturday and fly back on a Sunday, you’re competing with the rest of the world. See if you can fly out a little earlier or return a couple days later, you might end up saving hundreds of dollars on your fares!
- Drive – Driving is typically cheaper than flying. It might take a little longer, but if saving is a priority, consider changing up your travel destination to somewhere closer!
Travel Tips To Not Break Your Budget
Of course getting to your destination is only half the battle! Here are a few more spring break travel tips for you to consider during your travel.
- Get a hotel room that at least has a fridge, if not a full kitchen – While you might not want to spend your entire vacation cooking meals, there’s no doubt that buying groceries and cooking meals is WAY less expensive than eating out for every meal. Airbnb can be a great option as well.
- Periodically check your hotel rates – if you have a refundable hotel rate, periodically check the room rate to see if it went down. Then, you can cancel and rebook at the lower rate! If you’re flying Southwest Airlines (with no change or cancellation fees), you can also check your airfare and potentially rebook to save some extra cash.
- Look for a hotel that offers free meals – many hotels offer free breakfast, a perfect way to save on food costs. A few hotels (like many Residence Inn, Staybridge Suites, Embassy Suites or Homewood Suites brands) offer what they call an “evening reception”. This means heavy hors d’oeuvres and drinks which could make the best dinner for at least one night.
- Give your kids a souvenir budget – avoid breaking the bank on souvenirs AND lots of whining, set a souvenir budget! Think $20 or less. Then, it’s up to the kids to decide if they want to spend it or save the money.
Hopefully, these tips will help you stay on track with your spring break travel budget and save your DTI ratio. Happy traveling!