Debt-to-Income (DTI) Ratio Calculator
Calculate your DTI ratio to understand your financial health and borrowing capacity
Income Information
Debt Obligations
DTI Results
Understanding Debt-to-Income (DTI) Ratio
Your Debt-to-Income (DTI) ratio is a key financial metric that lenders use to evaluate your borrowing risk. It compares your monthly debt payments to your gross monthly income, expressed as a percentage.
How to Calculate DTI Ratio
The formula for calculating your DTI ratio is:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
For example, if your total monthly debt payments are $1,500 and your gross monthly income is $5,000, your DTI ratio would be:
(1,500 ÷ 5,000) × 100 = 30%
Why DTI Ratio Matters
Lenders use DTI ratio to assess your ability to manage monthly payments and repay debts. A lower DTI ratio indicates that you have a good balance between debt and income, making you a more attractive borrower.
DTI Ratio Classifications
- Below 20%: Excellent – You have a very low debt load relative to your income.
- 20% – 35%: Manageable – Your debt is at a manageable level.
- 36% – 43%: Acceptable – You may qualify for most loans, but could benefit from reducing debt.
- 44% – 50%: High – Your borrowing ability may be limited.
- Above 50%: Risky – You may struggle to obtain new credit and could be at risk of financial distress.
Tips to Improve Your DTI Ratio
1. Increase your income: Consider asking for a raise, taking on a side job, or finding other sources of income.
2. Pay down debt: Focus on paying off high-interest debt first, especially credit cards.
3. Avoid taking on new debt: Limit new credit applications and purchases that would increase your monthly debt obligations.
4. Refinance existing debt: Consider consolidating high-interest debts into a lower-interest loan.
Use this calculator regularly to monitor your financial health and track your progress toward improving your DTI ratio.