Debt-to-Income (DTI) Ratio Calculator

• What is Debt-to-Income (DTI) Ratio?
• Formula for Calculating DTI Ratio
• Using the Debt-to-Income (DTI) Ratio Calculator

What is Debt-to-Income (DTI) Ratio?

Debt-to-Income (DTI) ratio is a financial metric that compares your monthly debt payments to your gross monthly income. It provides insight into your ability to manage your debt obligations relative to your income. Lenders often use DTI ratio as a key factor when evaluating loan applications, as it helps assess an individual's creditworthiness and financial stability.

Formula for Calculating DTI Ratio

To calculate your DTI ratio, you'll need two pieces of information: your total monthly debt payments and your gross monthly income.

• Total Monthly Debt Payments: Include all recurring monthly debt obligations such as mortgage or rent payments, car loans, student loans, credit card payments, and any other debt obligations.
• Gross Monthly Income: This refers to your total monthly income before taxes and other deductions. It includes salary, wages, bonuses, commissions, rental income, and any other sources of income.

Once you have these figures, simply divide your total monthly debt payments by your gross monthly income, and then multiply the result by 100 to express it as a percentage.

\text{DTI Ratio} = \dfrac{ \text{Total Monthly Debt Payments} }{ \text{Gross Monthly Income} } \times 100

Using the Debt-to-Income (DTI) Ratio Calculator

Our calculator simplifies the process of calculating your DTI ratio. Input your monthly income and monthly debt payments into the respective fields, and click on the `Calculate` button. The calculator will instantly generate your DTI ratio and provide an assessment of your financial health based on the result.

Interpreting the Results:

• DTI Ratio Below 36%: A DTI ratio below 36% is generally considered favorable, indicating that you have a healthy balance between your debt obligations and income. Lenders are likely to view you as a low credit risk.
• DTI Ratio Between 36% and 50%: A DTI ratio in this range suggests that a significant portion of your income goes towards servicing debt. While not alarming, it may indicate a moderate level of financial strain. Consider taking steps to reduce your debt burden and improve your financial flexibility.
• DTI Ratio Above 50%: A DTI ratio exceeding 50% indicates a high level of debt relative to your income, which may pose financial challenges and increase the risk of default. It's essential to take immediate action to reduce debt and improve your financial situation.

Example Scenario:

Let's consider an example:

• Monthly Income: $5,000
• Monthly Debt Payments: $1,800

Using the formula:

In this scenario, the individual's DTI ratio is 36%, indicating a healthy financial position.