Your debt-to-income ratio

A worked example

Take a gross monthly income of $5,200. The monthly debt payments are $1,300 for rent, $350 for a car loan, and $300 in card minimums.

Those payments add up to $1,950. Divided by $5,200, that is a debt-to-income ratio of 37.5%.

Clearing one $350 payment moves the ratio from 37.5% to 30.8%, and from one band to the next.

The ratio responds to monthly payments, not balances. Removing a whole payment moves it faster than paying down a balance that still carries the same minimum.

These figures come from the same math as the calculator above, so the two always agree.

How this calculator works

You enter your gross monthly income and the total of your monthly debt payments.

It divides payments by income and shows the result as a percentage, then places it in a band. Under 36% is healthy. 36% to 43% is manageable but tight. 43% to 50% is strained. Above 50% is severe.

Count rent or mortgage, car loans, student loans, credit card minimums, personal loans, and child support. Leave out groceries, utilities, insurance, and phone bills. Lenders do not count those as debt.

Gross income is pay before taxes and deductions. For irregular income, use a monthly average across the past year.

What the ratio does not show

Interest rates. Two people with the same ratio can owe on 8% loans or 27% cards, and those are very different problems.

Take-home pay. The ratio uses gross income, and your budget runs on what lands in your account. A 37% ratio on gross is a larger share of take-home pay.

The balances. A small balance with a high minimum and a large balance with a low one can produce the same ratio.

Questions people ask about debt-to-income ratio

Does my debt-to-income ratio affect my credit score?

No. Credit reports do not include your income, so scores cannot use the ratio. Lenders calculate it separately when you apply.

What ratio do lenders want?

It varies by lender and loan type. Many treat 43% as a common cutoff, and some mortgage programs allow more. Under 36% leaves the most options open.

Is rent included?

For this calculator, yes. Mortgage lenders replace rent with the new housing payment. Many personal loan lenders count rent as part of your obligations.

How do I lower my ratio?

Remove a monthly payment or raise income. Paying off the loan with the smallest remaining balance often removes a payment fastest. Stretching a loan to a longer term lowers the payment too, but it usually raises the total cost.

My ratio is over 50%. What now?

Budgeting alone rarely closes a gap that size. The next step is pricing your options side by side. Start with thedebt settlement calculator.