What does a lower debt ratio indicate about an individual's financial situation?

A lower debt ratio signifies that an individual has a smaller proportion of debt relative to their overall assets or income. This situation generally indicates sound financial management and stability. When the debt ratio is low, it suggests that a person has less financial obligation and is leveraging a more significant portion of their resources for savings or investments rather than repayments. This financial health reflects a lower risk of default or financial strain, portraying the individual as better off financially.

A higher debt ratio, on the other hand, demonstrates a larger portion of their income or assets being consumed by debt obligations, which can lead to financial distress. Thus, a lower debt ratio is indeed a positive indicator of financial well-being.