How To Figure Out Your Debt-To-Income Ratio (It Matters)
This post may contain affiliate links.
Last Updated: December 12, 2019 11:52 am EST
This deal might be expired, but you can still get this item using the links below.
Debt-To-Income Ratio (or DTI) is exactly what it sounds like: how much debt you have compared to how much you are earning each month. Knowing How To Figure Out Your Debt-To-Income Ratio can give you more information before you borrow money or decide how big a loan should be (especially since lenders will often give you WAY more money than you really need). Lenders use it in their decision-making processes when granting loans (especially mortgages).
It’s also a number you should know. You can watch it go down every month, and it should be a factor when you consider something like filing for bankruptcy.
How To Figure Out Your Debt-To-Income Ratio
Here is how you calculate DTI: take your monthly debt payments and divide it by your gross monthly income. You can probably find your monthly debt payments by looking at your bank statement. Here is a chart of debt you can use to see an example:
| Lender | Interest Rate | Balance Owed | Minimum Payment | Snowball Payment |
| Computer Loan | 3.50% | $500.00 | $12.96 | |
| Signature Loan | 17.50% | $2,500.00 | $124.21 |
|
| Car Loan | 2.40% | $17,500.00 | $309.81 | |
| Student Loan | 4.20% | $65,000.00 | $317.86 |
This chart makes monthly payments $764.84. We will round it up to $765. Let’s say your pay every month (before deductions are taken out) is $3,300. So $765/$3300 is .23181818 or 23%. That means your DTI is 23%!
Want to save more money? Check out How To Find Savings Accounts That Pay More Money!
Your goal is to get your DTI as low as possible. If it’s too high, you are heading toward bankruptcy and no legitimate lender will give you a loan.
Also take into consideration your revolving debt. For example if you have a credit card with a $300 balance but a $5,000 limit a lender is going to see that as a potential $5,000 debt. So even debt you don’t have but COULD have can affect how a lender sees your DTI.
Lenders are squeamish about giving exact numbers, but when I worked in banking (and in my experience with my own mortgage) people usually liked numbers 40% and below. So that is a good gauge. If you can get your DTI to 40% or below you should be in a healthy place when you go to get a loan!
Laura M. Oliver is the author of Singles: Take Control of Your Own Financial Journey. It is available in paperback and Kindle on Amazon.
It is important to note that this blog accepts forms of cash advertising, sponsorships, paid insertions, or other forms of compensation. The compensation received will never influence the content, topics or posts made in this blog. All opinions stated in this blog belong to its author and no one else. I will only endorse products, companies, and services that I have found worthy of my time and opinion. A Frugal Chick is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to www.amazon.com.
Leave a Reply