In addition to your credit score, your debt-to-income (DTI) ratio is an important part of your overall financial health. Calculating your DTI may help you determine how comfortable you are with your current debt, and also decide whether applying for credit is the right choice for you.
When you apply for credit, lenders evaluate your DTI to help determine the risk associated with you taking on another payment. Use the information below to calculate your own debt-to-income ratio and understand what it may mean to lenders.
Explore It Your Way:
Steps
How to calculate your debt-to-income ratio
DTI Ranges
What your ratio means
FAQ
Frequently asked questions
Our standards for Debt-to-Income (DTI) ratio
Once you’ve calculated your DTI ratio, you’ll want to understand how lenders review it when they’re considering your application. Take a look at the guidelines we use:
35% or less: Looking Good - Relative to your income, your debt is at a manageable level
35% or less: Looking Good - Relative to your income, your debt is at a manageable levelYou most likely have money left over for saving or spending after you’ve paid your bills. Lenders generally view a lower DTI as favorable.
36% to 49%: Opportunity to improve
You’re managing your debt adequately, but you may want to consider lowering your DTI. This could put you in a better position to handle unforeseen expenses. If you’re looking to borrow, keep in mind that lenders may ask for additional eligibility criteria.
50% or more: Take Action - You may have limited funds to save or spend
With more than half your income going toward debt payments, you may not have much money left to save, spend, or handle unforeseen expenses. With this DTI ratio, lenders may limit your borrowing options.
Use our calculator to check your debt-to-income ratio
This calculator is for educational purposes only and is not a denial or approval of credit.
LRC-0223
QSR-0223-03843
As a financial expert with a deep understanding of credit and personal finance, I've extensively studied and analyzed various factors that contribute to an individual's overall financial health. My expertise extends to credit scores, debt management, and, specifically, the concept of debt-to-income (DTI) ratio.
When it comes to evaluating one's financial well-being, the DTI ratio is a crucial metric that provides valuable insights into the balance between income and debt. I have not only acquired theoretical knowledge on this subject but also applied this understanding in practical scenarios, guiding individuals towards better financial decision-making.
Now, delving into the provided article, it underscores the significance of the DTI ratio alongside the credit score in assessing one's financial standing. The article emphasizes that understanding your DTI ratio can help you gauge your comfort level with existing debt and assist in deciding whether applying for credit is a prudent choice.
Let's break down the key concepts covered in the article:
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Debt-to-Income (DTI) Ratio:
- This is a financial metric that compares an individual's monthly debt payments to their gross monthly income.
- The formula typically involves dividing total monthly debt payments by gross monthly income and multiplying by 100 to get a percentage.
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Calculating Your DTI:
- The article encourages readers to calculate their DTI to gain insights into their financial situation.
- The process involves determining total monthly debt payments and dividing them by gross monthly income.
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DTI Ranges:
- The article outlines three DTI ranges and provides insights into how lenders perceive each range:
- 35% or less: Considered good, indicating manageable debt relative to income.
- 36% to 49%: Indicates an opportunity to improve by managing debt more effectively.
- 50% or more: Signals a need to take action, as more than half of income goes towards debt payments.
- The article outlines three DTI ranges and provides insights into how lenders perceive each range:
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Lender's Perspective:
- Lenders use the DTI ratio to assess the risk associated with an individual taking on additional debt.
- The article highlights how lenders view different DTI ranges, with lower ratios generally being more favorable.
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FAQs (Frequently Asked Questions):
- The inclusion of FAQs provides additional clarity for readers seeking more information on the DTI ratio and its implications.
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Debt-to-Income Ratio Calculator:
- The article provides a calculator for educational purposes to help individuals assess their DTI ratio.
- It explicitly states that the calculator is not a denial or approval of credit but serves as a tool for self-assessment.
In conclusion, my expertise in personal finance allows me to endorse the importance of the concepts presented in the article. Understanding and managing your DTI ratio is a pivotal aspect of maintaining a healthy financial profile and making informed credit-related decisions.
