Why Your Debt-to-Income Ratio Matters — And How to Calculate It Easily

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Understanding your debt-to-income ratio is crucial for managing finances effectively. This ratio helps determine how much of a person’s income goes towards debt repayments, which is essential for securing loans or mortgages.

Calculating it is straightforward. Knowing this number can empower individuals to improve their creditworthiness and budgeting strategies.

What Is a Debt-to-Income Ratio, And Why It Matters

The debt-to-income (DTI) ratio compares how much you owe each month to how much you earn. It’s shown as a percentage and includes recurring debts like loans, credit cards, or mortgages.

Lenders use your DTI to assess borrowing risk. A lower ratio shows you’re likely managing your debt well. A high DTI, on the other hand, may raise concerns and affect your chances of loan approval.

Knowing your DTI also helps you budget better and avoid taking on too much debt.

Check out DTI at a glance through the following post:

How to Calculate Your Debt-to-Income Ratio in Minutes

Calculating your debt-to-income (DTI) ratio is quick and easy. Start by listing your total monthly debt payments, including things like your mortgage, car loans, and credit card bills. Then, find your total monthly income after taxes.

Divide your total debt by your total income, then multiply by 100. For example, if you owe $2,000 each month and earn $6,000, your DTI is 33.3 percent.

A DTI below 36 percent is usually a good sign. This simple step helps track financial stability.

Here’s a calculator to make it easy for you:

What Your Debt-to-Income Ratio Means for Loans, Credit, and Your Future

Your debt-to-income ratio is key to qualifying for loans and credit. It shows how much of your income goes toward debt each month.

In this video, learn how lenders calculate DTI, what counts as a healthy range, and tips to improve your ratio:

It’s a simple way to better understand your borrowing power.