A debt-to-income ratio is a personal finance measure that compares the amount of debt you have to your gross income. Lenders use the debt-to-income ratio as a way to measure your ability to manage the payments you make each month and repay the money you have borrowed. It is calculated by dividing your total recurring monthly debt by your gross monthly income.

To calculate your debt-to-income ratio, start by adding up all of your recurring monthly debts, including:

  • Mortgage
  • Auto loans
  • Student loans
  • Minimum credit card payments
  • Child support and alimony
  • Any other monthly debt obligations

Next, determine your gross (pre-tax) monthly income, being sure to include:

  • Wages
  • Salaries
  • Tips and bonuses
  • Pension
  • Social Security
  • Child support and alimony
  • Any other additional income

Finally, divide your total recurring monthly debt by your gross monthly income. The quotient will be a decimal; multiply by 100 to express your debt-to-income ratio as a percentage.

Here's an example. Mary has the following recurring monthly debts:

  • $1,000 mortgage
  • $500 auto loan
  • $200 student loan
  • $200 credit card
  • $400 other monthly debt obligations

Mary's total recurring monthly debt equals $2,300.

Mary has the following gross monthly income:

  • $4,000 salary from primary job
  • $2,000 from second job

Mary's gross monthly income equals $6,000

Mary's debt-to-income ratio is calculated by dividing her total recurring monthly debt ($2,300) by her gross monthly income ($6,000):

Debt-to-income ratio = $2,300 / $6,000 = 0.38

Multiply by 100 to express as a percentage:

0.38 X 100 = 38%

Mary's debt-to-income ratio = 38%

Less debt and/or a higher income would lower (and improve) Mary's debt-to-income ratio. For example, once Mary pays off her student and auto loans, her debt-to-income ratio (assuming all other factors remain the same) would be:

Total recurring monthly debt = $1,600

Gross monthly income = $6,000

Debt-to-income ratio = $1,600 / $6,000 = 0.27 or 27%.

  1. What is the difference between secured and unsecured debts?

    Lending products available to consumers fall under two main categories: secured and unsecured debt. While a lender evaluates ... Read Full Answer >>
  2. What are the most common reasons credit limit increase requests are declined?

    When you request a credit limit increase from your credit card provider, your current debt-to-income ratio and your projected ... Read Full Answer >>
  3. What are the requirements for an FHA loan?

    An FHA mortgage is backed by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban ... Read Full Answer >>
  4. What is the formula for calculating the debt-to-equity ratio?

    Expressed as a percentage, the debt-to-equity ratio shows the proportion of equity and debt a firm is using to finance its ... Read Full Answer >>
  5. How does my debt-to-income (DTI) ratio affect my ability to get a mortgage?

    A debt-to-income ratio is a personal finance measure that compares the amount of debt you have to your overall income. Lenders, ... Read Full Answer >>
  6. What's considered to be a good debt-to-income (DTI) ratio?

    A debt-to-income ratio (DTI) is a personal finance measure that compares the amount of debt you have to your overall income. ... Read Full Answer >>
  7. What is considered a high debt-to-equity ratio and what does it say about the company?

    The debt-to-equity ratio is a measure of a company's financial leverage that relates the amount of a firms' debt financing ... Read Full Answer >>
Related Articles
  1. Insurance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  2. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  3. Savings

    6 Millionaire Traits That You Can Adopt

    Millionaires have more in common than just their bank accounts. They share certain qualities that help them make it to the top.
  4. Stock Analysis

    The Biggest Risks of Investing in Berkshire Hathaway Stock

    Learn about the risks of investing in Berkshire Hathaway. Understand how issues of succession, credit downgrade risk and increased regulation could hurt it.
  5. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  6. Investing

    Where Should I Keep My Down Payment Savings?

    While saving up for a down payment, where should you keep your money. A bank? The stock market? It all depends on your timeline.
  7. Budgeting

    Retirement Tips for Millennials from Gen Xers

    Gen Xers' financial situation has been very different from previous generations'. Now they'd like to pass on some hard-earned wisdom to the Millennials.
  8. Credit & Loans

    Questions To Ask Your Mortgage Lender

    When buying a house, avoid nasty surprises by asking the right questions about your mortgage lender's qualifications and the mortgage process.
  9. Budgeting

    Best 5 Money-Saving Tips to Get out of Debt

    Understand the different types of debt and the reasons why people get into debt. Learn about five tips to follow to get out of debt.
  10. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  1. Debt-To-Income Ratio - DTI

    A personal finance measure that compares an individual's debt ...
  2. Encumbrance

    A claim against a property by a party that is not the owner. ...
  3. Equity

    Equity is the value of an asset less the value of all liabilities ...
  4. Debt/Equity Ratio

    Debt/Equity Ratio is debt ratio used to measure a company's financial ...
  5. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  6. Chattel Mortgage Non-Filing Insurance

    An insurance policy covering losses that result from a policyholder ...

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!