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Debt-to-income ratio, or DTI, divides your total monthly debt payments by your gross monthly income. It is usually expressed as a percentage. Lenders factor in your DTI during the loan approval process.
Here’s what to know about DTI and how to calculate it.
How to use this DTI calculator
To calculate your DTI, first enter the debt payments you owe each month, such as your mortgage or rent, student loan and auto loan payments, credit card minimums and other regular payments. Then, adjust the slider to match your gross monthly income (total income before taxes and other deductions).
How to calculate your debt-to-income ratio
To manually calculate DTI, divide your total monthly debt payments by your monthly income before taxes and deductions are taken out. Multiply that number by 100 to get your DTI expressed as a percentage.
The DTI formula is:
Total monthly debt/total gross monthly income x 100 = DTI%
Here’s an example: Suppose you have a gross monthly income of $6,000 and the following monthly expenses:
- $1,800 mortgage.
- $400 car payment.
- $200 minimum credit card payment.
In this example, $2,400 is the sum of all debt payments. You’d calculate your DTI ratio as follows:
- Divide $2,400 by $6,000, which equals 0.4.
- Multiply 0.4 by 100, which equals a 40% DTI.
Debt payments to include
To get the most accurate DTI ratio, include any debts you’re obligated to repay, including:
- Mortgage or rent payments.
- Auto loan payments.
- Student loan payments.
- Minimum credit card payments.
- Personal loan payments, including co-signed loans.
- Other debt payments, such as the minimum payment on a home equity line of credit.
- Child support, alimony or other court-ordered payments.
Expenses to exclude
Don’t include other monthly expenses, such as:
- Groceries.
- Gas.
- Utility payments.
- Phone bills.
- Health insurance.
- Auto insurance.
- Child care payments.
- Recreational spending.
What counts as income?
You should include regular sources of income, such as:
- Salary from full-time work.
- Part-time wages.
- Self-employment and freelance income.
- Child support or alimony received.
- Social Security benefits.
- Rental property income.
Don’t include money from a gift, inheritance, prize or other one-time events.
How personal loan lenders view your DTI ratio
Your DTI ratio is one of the top factors lenders consider when you apply for a personal loan, along with your credit score and credit history. Having a high debt-to-income ratio may cause lenders to be concerned that you would have trouble making consistent payments.
Here are the maximum DTI ratios set by several well-rated personal loan lenders:
| Lender | Maximum DTI |
|---|---|
| 70%, including mortgage. | |
| 65%, including mortgage. | |
| 40%. | |
| 55% (but can vary). | |
| 75%, including mortgage. | |
| 75%, including mortgage. | |
| 50%, excluding mortgage, in most states; 45%, excluding mortgage, in CT, MD, NY and VT. | |
| 60%. |
What’s a good DTI ratio?
The debt-to-income ratios that lenders accept can vary widely, and personal loans often have a higher allowable maximum DTI than mortgages. That’s because one of the most common uses of personal loans is to consolidate credit card debt.
Here’s a general breakdown of different DTI ranges:
- DTI is less than 36%: Your debt is likely manageable, relative to your income. You shouldn’t have trouble getting approved for new loans or credit lines.
- DTI is 36% to 42%: Many lenders accept DTIs in this range, but this level of debt could deter some lenders. Consider paying down what you owe. You can probably take a do-it-yourself approach. Two common methods are the debt avalanche and debt snowball.
- DTI is 43% to 50%: Some lenders may decline applications for more credit. If you have primarily credit card debt, consider a debt consolidation loan. You may also want to look into a debt management plan from a nonprofit credit counseling agency. These agencies typically offer free consultations and will help you understand all your debt relief options.
- DTI is over 50%: Your borrowing options are more limited, and paying down this level of debt could be difficult. Weigh different debt relief options, including bankruptcy or debt settlement.
Does DTI affect your credit score?
Your debt-to-income ratio does not affect your credit scores. Credit reports don’t include income, so income isn’t used to calculate your credit score.
However, the amount of debt you have can affect your credit score. More specifically, your credit utilization, which is the amount of revolving debt you have compared to your credit limits, has a significant impact on your credit score.
Most experts advise keeping the balances on your credit cards, or other revolving credit lines, no higher than 30% of your credit limit.
Ways to lower your DTI ratio
Reduce your debt-to-income ratio to improve your chances of qualifying for future credit.
- Increase your income. Make more money with a side gig, like babysitting or dog walking. Getting a raise or a better-paying job may require more effort but would also lower your DTI.
- Reduce your debt. Paying down your credit card balance can reduce your minimum monthly payments. Your DTI will also go down if you pay off installment loans, like student loans or a car loan.
- Refinance or consolidate debt. Refinancing or consolidating debt at a lower interest rate could lower your monthly payments and therefore reduce your DTI. Negotiating a longer repayment term could also lower your monthly debt payments, though you may wind up paying more interest over time.
- Avoid taking on additional debt. Try not to add to your credit card balance or take out additional loans if you want to lower your DTI.
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