What is a debt-to-income ratio?

A debt-to-income ratio (DTI) is a personal finance measure that compares the amount of debt you have to your overall income. It shows how much of your money is spoken for by debt payments and how much is left over for other things. Lenders, including anyone who might give you a mortgage or an auto loan, use DTI as a measure of creditworthiness.

How do you calculate a debt to income ratio?

It takes into account all of your minimum monthly debt payments—this includes housing costs, car loans, credit cards, personal loans and student loans. The simplest way to calculate your DTI ratio is to divide your monthly debts by your gross monthly income, and then multiply by 100. DTI = Monthly Debt Payments / Gross Monthly Income x 100

What is a 30% debt-to-income ratio?

Here’s an example: A borrower with rent of $1,200, a car payment of $400, a minimum credit card payment of $200 and a gross monthly income of $6,000 has a debt-to-income ratio of 30%. In this example, $1,800 is the sum of all debt payments. When you divide $1,800 by $6,000 and then multiply that answer by 100, you get 30.