Your debt-to-income ratio is the number that determines whether you're drowning or swimming. Banks use it to decide if you can handle more debt. You should use it to decide if you're carrying too much already.
Here's how to calculate it in about 3 minutes.
What Is Debt-to-Income Ratio?
It's simple: how much you owe every month divided by how much you make every month.
The answer comes out as a percentage.
The formula:(Total Monthly Debt Payments ÷ Gross Monthly Income) × 100 = DTI%
Step 1: Add Up Your Monthly Debt Payments
Include ONLY recurring debt payments:
- Rent or mortgage payment
- Car loans
- Credit card minimum payments
- Student loan payments
- Personal loans
- Any other debt with a monthly payment
Do NOT include:
- Utilities
- Groceries
- Gas
- Insurance (unless it's part of your mortgage payment)
- Phone bills
- Subscriptions
Step 2: Calculate Your Gross Monthly Income
This is what you make BEFORE taxes. If you're salaried, divide your annual salary by 12.
If you're paid hourly, multiply your hourly rate by the hours you work per week, then multiply by 4.33 (the average weeks per month).
If your income varies, average the last 3-6 months.
Step 3: Do the Math
You can use our simple Debt-to-Income Ratio Calculator to make it easy, or calculate it yourself. Let's say you make $5,000/month gross and your monthly debt payments look like this:
- Rent: $1,500
- Car payment: $400
- Credit cards: $300
- Student loans: $250
Total monthly debt: $2,450
$2,450 ÷ $5,000 = 0.49
0.49 × 100 = 49% DTI
What Your DTI Number Actually Means
Under 36%: You're in good shape. Most lenders see you as low risk.
36-42%: You're manageable but starting to stretch. Banks might approve you, but you're one emergency away from trouble.
43-49%: You're in the danger zone. Most mortgage lenders won't touch you. Credit card companies love you because you're paying tons of interest.
50%+: You're underwater with half or more of your income going to debt.
Why This Number Matters More Than You Think
Banks use 43% as the magic cutoff for most mortgages. Go over that and you're likely not buying a house.
But here's what they don't tell you: if your DTI is over 36%, you're spending too much of your life paying interest instead of building wealth.
Every percentage point over 36% is money that could be going toward savings, investments, or literally anything else.
What To Do If Your DTI Is Too High
If you're over 43%, you've got three options:
- Increase your income (easier said than done)
- Lower your monthly payments (refinance, negotiate, consolidate)
- Settle your debt (cut the total amount you owe)
Most people focus on option 1. That's backward.
If you're paying $800/month on credit cards at 28% interest, getting a raise isn't going to fix that. The interest will eat any extra income.
Option 3 is faster. Settle that debt for 50% off, cut your monthly payments in half, drop your DTI by 10-15 points immediately.
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