Debt-to-Income Ratio Calculator
Income Information
Monthly Debt Payments
Your Debt-to-Income Ratio is:
0%
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What is a Debt-to-Income (DTI) Ratio?
Your Debt-to-Income (DTI) ratio is a personal finance measure that compares your monthly debt payment to your monthly gross income. Lenders use this ratio to determine your ability to repay borrowed money. It is calculated by dividing your total recurring monthly debt by your gross monthly income, expressed as a percentage.
Why Does Your DTI Matter?
A low DTI demonstrates a good balance between debt and income. Lenders view borrowers with low DTI ratios as creditworthy and less risky. Conversely, a high DTI ratio suggests you may have too much debt for the amount of income you earn, making lenders hesitant to approve mortgages, car loans, or credit cards.
- 35% or less: Generally viewed as favorable. You likely have manageable debt.
- 36% to 49%: Manageable, but lenders may require additional scrutiny before approving large loans like mortgages.
- 50% or higher: Considered high risk. You may have difficulty borrowing money or obtaining favorable interest rates.
How is DTI Calculated?
The formula for DTI is relatively simple:
(Total Monthly Debt Payments / Gross Monthly Income) x 100 = DTI %
Example Calculation
Imagine you have an annual salary of $60,000. Your gross monthly income is $5,000 ($60,000 / 12).
Your monthly debts are:
- Rent: $1,200
- Car Loan: $400
- Student Loan: $200
- Credit Cards: $200
Total Monthly Debt: $2,000
Calculation: ($2,000 / $5,000) = 0.40 or 40%.
How to Lower Your DTI Ratio
If your DTI is higher than you'd like, consider these strategies:
- Pay off high-interest debt: Focus on credit cards or personal loans to reduce monthly obligations.
- Increase your income: Look for side hustles, freelance work, or negotiate a raise to increase the denominator in the calculation.
- Avoid new debt: Postpone applying for new loans until your existing balances are reduced.