In addition to your credit score, your debt-to-income ratio (DTI) is an important part of your overall financial well-being. Calculating your DTI1 could help you determine how comfortable you are with your current debt and also decide if applying for credit is the right option for you.
When applying for a loan, lenders evaluate your DTI to help them determine the risk associated with you making another payment. Use the information below to calculate your debt-to-income ratio and understand what it means to lenders.
How to Calculate Your Debt-to-Income Ratio
Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. In specific terms, it is the percentage of your monthly gross income (before taxes) that goes towards rent payments, home loans, credit cards, or other debt. To calculate your debt-to-income ratio:
Step 1:
Add up your monthly bills that could include:
- Monthly rent or housing payment
- Monthly payments for alimony or child support
- Student Loan, Auto, and Other Monthly Loan Payments
- Monthly credit card payments (use the minimum payment)
- other debts
Step 2:
- Divide the total by your gross monthly income, which is your income before taxes.
Step 3:
- The result is your DTI, which represents a percentage. The lower the DTI, the lower the risk to lenders.
What is a good debt-to-income ratio?
- In addition to your credit score, your debt-to-income ratio (DTI) is an important part of your overall financial well-being. Calculating your DTI 1 could help you determine how comfortable you are with your current debt and also decide if applying for credit is the right option for you.
- When applying for a loan, lenders evaluate your DTI to help them determine the risk associated with you making another payment. Use the information below to calculate your debt-to-income ratio and understand what it means to lenders.
