How Can I Calculate My Debt-to-Income Ratio?

Understanding Your Debt-to-Income (DTI) Ratio

Your debt-to-income (DTI) ratio is a key financial metric that compares your total monthly debt payments to your gross monthly income. Lenders use it to gauge your ability to manage new debt, making it crucial when you apply for a mortgage, auto loan, or new credit card. The Consumer Financial Protection Bureau (CFPB) highlights DTI as a primary factor in lending decisions.

The DTI Formula

Calculating your DTI is a two-step process:

1. Sum Your Monthly Debt Payments: Add up all your minimum monthly debt obligations. This includes:

   • Rent or mortgage payment
   • Auto loan payments
   • Minimum credit card payments
   • Student loan payments
   • Personal loan payments
   • Alimony or child support payments

2. Divide by Your Gross Monthly Income: Divide your total monthly debt by your gross monthly income (your income before taxes and other deductions are taken out).

Formula: (Total Monthly Debt / Gross Monthly Income) * 100 = DTI %

Example:

• Total Monthly Debt: $2,000 ($1,500 mortgage + $300 car loan + $200 student loan)
• Gross Monthly Income: $6,000
• Calculation: ($2,000 / $6,000) * 100 = 33.3%

Your DTI is 33.3%.

What's a Good DTI Ratio?

While it varies by lender, here's a general guide:

• 36% or less: You are likely in a good financial position to handle new debt.
• 37% to 43%: This is a manageable range, but you may have less flexibility. Lenders may see you as a higher risk.
• 44% or higher: This is considered a high DTI. You may have difficulty qualifying for new loans.

Improve Your DTI with Moneko

• Analyze Your Debt: Connect your accounts to Moneko to get a clear picture of all your debts in one place.
• Create a Payoff Strategy: Use the Goal Tracking System to create a debt reduction plan. Decide whether the "snowball" or "avalanche" method is right for you.
• Get Expert Advice: Ask the Moneko AI Financial Educator for personalized tips on how to lower your DTI, such as strategies for increasing your income or consolidating debt.

Disclaimer: This content is for informational purposes only and does not constitute financial advice. All investment decisions carry risk. Conduct your own thorough research or consult a qualified financial advisor.