Debt-to-Income Ratio

In addition to your credit score, your debt-to-income (DTI) ratio is an important measure of your overall financial health. Calculating your DTI can help you determine how comfortable you are with your current debt load and whether you are at risk of overextending yourself financially. Lenders also use your DTI ratio to assess your ability to repay a loan, so keeping it in a healthy range is important.

\dfrac{\text{Monthly debt payment}}{\text{Gross monthly income}} \times 100\%


How Do I Calculate My DTI Ratio?

There are three steps you can complete to calculate your debt-to-income (DTI) ratio.


Step 1

Add up your monthly bills, which may include:

  • Monthly rent or house payment
  • Monthly alimony or child support payments
  • Student, auto, and other monthly loan payments
  • Credit card monthly payments (use the minimum payment)
  • Other debts

Note: Expenses like groceries, utilities, gas, and your taxes generally are not included


Step 2

Divide the total by your gross monthly income, which is your income before taxes and deductions.


Step 3

The result is your DTI, which will be in the form of a percentage. The lower the DTI, the less risky you are to lenders.

For example, if you pay $1,500 a month for your mortgage, $100 a month for an auto loan, and $400 a month for the rest of your debts, your monthly debt payments are $2,000 ($1500 + $100 + $400 = $2,000). If your gross monthly income is $6,000, your DTI ratio is 33% (= 100% × $2,000 / $6,000).


How Good Is Your DTI?

  • 35 percent or less: Looking good

Relative to your income, your debt is at a manageable level. You most likely have money left over to save or spend after you have paid your bills. Lenders generally view a lower DTI as favorable.

  • 36 to 49 percent: Opportunity to Improve

You are managing your debt adequately but may want to consider lowering your DTI. This could put you in a better position to handle unforeseen expenses.

  • 50 percent or more: Take Action

You may have limited funds to save or spend. With more than half your income going toward debt payments, you may not have much money left to save, consume, or handle unforeseen expenses. With this DTI ratio, lenders may limit your borrowing options.
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