Enter your gross monthly income and all your monthly debt payments (loans, credit cards, rent/mortgage, etc.) to see your ratio. A lower ratio is generally better.
What is the Income to Debt Ratio?
The Income to Debt Ratio (often called the Debt-to-Income Ratio or DTI) is a crucial financial metric used by lenders and individuals to assess a person's ability to manage monthly payments and repay debts. It compares your total monthly debt obligations to your gross monthly income.
How is it Calculated?
The calculation is straightforward:
Step 1: Sum up all your recurring monthly debt payments. This includes:
Mortgage or Rent payments
Car loan payments
Student loan payments
Minimum credit card payments
Personal loan payments
Alimony or child support payments (if applicable)
Any other mandatory monthly debt obligations
Note: This typically does not include living expenses like groceries, utilities (unless bundled into rent/mortgage), or entertainment.
Step 2: Determine your gross monthly income. This is your income before any taxes or deductions are taken out.
Step 3: Divide your total monthly debt payments by your gross monthly income.
The formula is:
Income to Debt Ratio = (Total Monthly Debt Payments / Gross Monthly Income) * 100
The result is expressed as a percentage.
Why is it Important?
Your Income to Debt Ratio provides a snapshot of your financial health:
Lender's Perspective: Lenders use this ratio extensively when evaluating loan applications (mortgages, auto loans, personal loans). A lower DTI indicates a lower risk for the lender, making you a more attractive borrower. Many lenders have specific DTI thresholds they will not exceed.
Personal Financial Management: Understanding your DTI helps you identify if you have too much debt relative to your income. It can guide decisions about taking on new debt, increasing payments, or seeking ways to boost income or reduce expenses.
Interpreting Your Ratio
While specific thresholds can vary by lender and loan type, here are general guidelines:
35% or less: Generally considered good. You likely have a healthy balance between income and debt.
36% to 43%: Acceptable for some loans, but may indicate a higher risk. Lenders might scrutinize your application more closely.
44% or more: Often considered high. This could make it difficult to qualify for new loans and suggests you may be overextended. It's a strong signal to focus on reducing debt or increasing income.
It's always best to consult with a financial advisor or potential lenders for specific advice tailored to your situation.
function calculateDebtRatio() {
var monthlyIncomeInput = document.getElementById("monthlyIncome");
var totalMonthlyDebtInput = document.getElementById("totalMonthlyDebt");
var resultValueDiv = document.getElementById("result-value");
var interpretationTextP = document.getElementById("interpretation-text");
var monthlyIncome = parseFloat(monthlyIncomeInput.value);
var totalMonthlyDebt = parseFloat(totalMonthlyDebtInput.value);
// Basic input validation
if (isNaN(monthlyIncome) || monthlyIncome <= 0) {
resultValueDiv.textContent = "Invalid Income";
interpretationTextP.textContent = "Please enter a valid positive number for your gross monthly income.";
return;
}
if (isNaN(totalMonthlyDebt) || totalMonthlyDebt < 0) {
resultValueDiv.textContent = "Invalid Debt";
interpretationTextP.textContent = "Please enter a valid non-negative number for your total monthly debt payments.";
return;
}
var debtRatio = (totalMonthlyDebt / monthlyIncome) * 100;
// Display the result
resultValueDiv.textContent = debtRatio.toFixed(2) + "%";
// Provide interpretation
var interpretation = "";
if (debtRatio 35 && debtRatio <= 43) {
interpretation = "Your Income to Debt Ratio is between 36% and 43%. This is considered acceptable by many lenders, but may require closer examination. It's advisable to consider strategies to reduce your debt burden or increase your income.";
} else {
interpretation = "Your Income to Debt Ratio is over 43%. This is considered high and may make it challenging to qualify for new loans. Focus on reducing your debt payments or increasing your income to improve this ratio.";
}
interpretationTextP.textContent = interpretation;
}