Debt to Income Ratio (DTI) reflects how much of your gross monthly income is used towards your monthly debt payments. You can calculate your DTI using the Debt to Income Ratio Calculator. Just enter your debt payments and annual income in order to calculate your DTI.

How do you calculate debt to income ratio?

Let's take an example in order to find out how to calculate Debt to income ratio using the debt to income ratio calculator.

Say, your monthly debt payment includes the following:

Monthly Mortgage or Rent = $2500
Minimum payment on credit cards = $5000
Monthly car loan payment = $1500
Other obligations = $0

Let's consider your income details as:

Annual Gross Salary = $ 400,000
Bonus income = $20,000
Other income = $0
Alimony received = $0

Putting the above details in the Debt to Income Ratio Calculator, your DTI comes out to be = (Total monthly debt payment/Gross monthly income) = 26%.

Apart from the debt to income ratio, the calculator will also give you a financial suggestion as to whether your debt load can be managed well with your level of income.

What is the acceptable debt to income ratio?

Most people are concerned about "what is ideal income to debt ratio?" or "what is a good debt to income ratio?". The acceptable debt to income ratio or revolving debt to total income ratio (if you have only credit card bills) is the one which doesn't exceed 36%. That is, your monthly debt payments shouldn't go beyond 36% of your gross monthly income.

How important is the debt to income ratio?

It is essential that you have an acceptable debt to income ratio. It implies that you can manage your debts easily with your income. That is, you have good control over your money. So, if you have a debt to income ratio not more than 36%, lenders will consider you to be a responsible borrower. Thus, a good DTI helps you to qualify for loans (especially mortgage, car loan, student loans) at better rates and terms.

Why should you keep track of your DTI?

It is important to keep track of your debt to income ratio as it helps to analyze your financial standing. DTI makes it easier to compare your income with what you owe your creditors. You'll come to know if your debt load is too high and whether you need to take steps in order to avoid debt problems in future.