What Is Debt-to-Income Ratio (DTI)?

Your debt-to-income ratio (DTI) is a simple number that tells you — and lenders — how much of your monthly income goes toward debt payments. It’s one of the most important numbers in personal finance, and understanding it puts you in control.

How to Calculate Your DTI

The formula is straightforward:

DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100

For example, if you pay $1,500/month toward debt (mortgage, car, credit cards, student loans) and earn $5,000/month before taxes:

DTI = ($1,500 / $5,000) x 100 = 30%

What Counts as “Debt Payments”

Include these in your calculation:

• Mortgage or rent
• Car payments
• Credit card minimum payments
• Student loan payments
• Personal loan payments
• Child support or alimony
• Any other recurring debt obligation

Don’t include:

• Utilities (electric, water, internet)
• Groceries
• Insurance premiums
• Subscriptions

What’s a “Good” DTI?

DTI Range	What It Means
Under 20%	Excellent — you’re in a strong position
20-35%	Healthy — manageable for most people
36-43%	Getting tight — lenders may hesitate
44-50%	Strained — refinancing or new credit will be difficult
Over 50%	Critical — most of your income goes to debt

Most mortgage lenders want to see a DTI of 43% or below for approval. For the best interest rates, aim for under 36%.

Why DTI Matters

Your DTI affects:

• Loan approvals — lenders use it to decide if you can handle more debt
• Interest rates — lower DTI often means better rates
• Financial flexibility — a high DTI leaves little room for unexpected expenses
• Stress levels — there’s a real correlation between high DTI and financial anxiety

How to Improve Your DTI

You have two levers: reduce debt payments or increase income.

Reduce debt:

• Use the snowball or avalanche method to accelerate payoff
• Consolidate high-rate debts into a lower-rate loan
• Negotiate lower interest rates with creditors

Increase income:

• Negotiate a raise
• Take on freelance or part-time work
• Sell items you no longer need

Even small improvements matter. Dropping from 42% to 38% DTI can make the difference between a loan approval and a rejection.

The Bottom Line

Your DTI is a snapshot, not a life sentence. Knowing your number is the first step to improving it. Calculate yours today, and if it’s higher than you’d like, explore our strategies for bringing it down.