Your DTI ratio is pretty much exactly what it sounds like: the ratio of what you make every month to what you owe.
Lenders typically use your debt-to-income ratio (DTI ratio) to determine whether you can afford to take on new debt. While it’s not the only metric they use, it’s an important one.
Use the calculator below to calculate your personal DTI ratio.
Your DTI ratio is:
What Is a Debt-to-Income Ratio?
Your debt-to-income ratio (DTI ratio) is your monthly debt obligations divided by your monthly income. This simple statistic is one factor lenders consider when determining your eligibility for a line of credit. Simply put, it provides them with an indication of whether you can afford to pay them back.
How To Use The Debt-To-Income Ratio Calculator
This debt-to-income calculator will help you determine your DTI ratio.
To get started, enter your monthly pre-tax income in the first form field. In the second form field, enter the sum of your monthly debt obligations. Remember to add in all revolving debt and installment payments including those associated with a mortgage, a car loan, student loans, credit cards, and child support as well as any others specific to your situation. Once you’ve entered all of your information, click the “Calculate” button to see your DTI ratio.
What is a Good Debt-To-Income Ratio?
While there isn’t any universal criteria for what constitutes a good DTI ratio, there is one metric that’s widely employed by lenders: the 36/28 rule. This rule says that no household should devote more than 36% of its monthly income to servicing debt or spend more than 28% of its income on housing (i.e., mortgage payments, home insurance, rent, HOA fees, etc.). Lenders want to ensure that borrowers can afford their monthly payments, and households that exceed these spending limits pose, from a creditor’s point of view, a high risk of default.
How to Lower Your Debt-To-Income Ratio
While it won’t always be easy, especially in the short term, there are steps you can take to lower your DTI ratio:
1. Pay more than you owe: If you can afford to make more than the minimum payments on credit cards and installment loans, you will improve your DTI ratio by doing so. By paying more, you’ll reduce your debt more quickly and, as an added bonus, you’ll pay less in interest over the payback period.
2. Avoid new debts: While paying down existing debts, you should also try to avoid taking on new debt. This means refraining from charging purchases to credit cards and postponing large purchases like a car, for example, unless absolutely necessary.