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There’s an easy way to tell if you have too much debt, by comparing it to your income.
Debt-to-income ratio is a key indicator of your financial health. It helps ensure you don’t get overextended with credit. It’s also the ratio that lenders use to determine if you get approved for a new loan. So, it’s essential to know where your debt-to-income ratio (DTI) stands. It serves as a good early warning sign that you may have too much debt. That way, you can stop charging and focus on repayment at the right time.
Calculating your personal debt-to-income ratio is fast and easy with this free debt-to-income ratio calculator. Simply use your budget to fill in the numbers below and click “CALCULATE” to determine your personal DTI. If you’re not sure how to use DTI or what it means, there’s more information below the calculator. We recommend returning to this page to periodically check your debt ratio, particularly if there has been a recent change in yourincome or financial situation.
Note: All values required below are monthly. If you receive income and/or make payments on a different schedule, determine how much you pay on a monthly basis to enter the values below.
Determine Your DTI Ratio
Need to pay off some debt? Talk to a certified credit counselor for a free evaluation.
Debt-to-income ratio ranges: What does my DTI mean?
| DTI | What it means |
|---|---|
| Less than 36% | You are financially stable and should have no problems getting approved for new financing. |
| 36%-41% | This is an acceptable amount of debt relative to your income, but you may want to eliminate some debt before you apply for your next loan. |
| 41-45% | You are on the verge of having too much debt and may not get approved for new loans with some lenders; you will need to eliminate debt to have broader access to financing |
| More than 50% | This much debt will likely lead to financial hardship. It may be difficult to pay off debt on your own, so you will need help to become debt free |
What is a debt-to-income ratio?
Debt-to-income ratio is what lenders use to determine if you are eligible for a loan. If you have too much debt relative to your income, you won’t get approved for a new loan. For most lenders, the cutoff is around 41%. If you spend more than 41% of your income on debt payments each month, that makes you a high-risk candidate for a loan. The concern is that you won’t be able to afford all your debt payments and may default. Thus, you get rejected for the loan.
So, this means it’s a good idea to check your debt-to-income ratio before you apply for a loan to make sure you can get approved. If you maintain a debt-to-income ratio of 36% or less, then you can easily get approved for new loans. You won’t need to worry about getting rejected for your next auto loan or even mortgage
Using DTI to decide if it’s time to get debt relief
Another good use of DTI is that you can use it to determine if it’s time to get help with debt. If your debt-to-income ratio is higher than 50%, you have an urgent need to eliminate debt. However, if you owe that much, it can be difficult to pay off credit card debt using traditional monthly payments. You will often need help to become debt free.
This map shows the average debt-to-income ratio of credit users in each state who call forcredit counseling. The colors reflect the average debt-to-income ratio of people looking for debt help in 2018.
If your debt-to-income ratio is too high and you need help, talk to a certified credit counselor to evaluate your options to get out of debt.
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This content is based on accredited financial data gathered from reputable sources, such as government websites, credit bureaus, and nonprofit organizations. All articles are written by certified credit counselors and fact checked by certified financial experts.
Our team strives to provide educational content that fully informs readers of all their options as they relate to debt, credit and personal finance. Our goal is to give readers the information they need to make informed financial decisions on their own.
This article contains references that provide sources for the financial data we used. The numbers in brackets [1,2,3] are clickable links to each data source or study referenced.
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