How to calculate the debt-to-income ratio?

Your debt-to-income (DTI) ratio is a simple way to see how much of your monthly income is used to pay down your debts. It’s a tool that lenders use to figure out how well you can handle your monthly debt payments.

To get your DTI ratio, just add up all your monthly debt payments—like what you pay for your mortgage or rent, car loan, student loans, and credit cards. Then, divide that total by your gross monthly income, which is how much money you make each month before taxes and other deductions. The answer you get is turned into a percentage. For example, if you’re spending $1,000 a month on debts and you make $3,000 a month, your DTI ratio would be about 33.3%.

A lower DTI ratio is usually better because it means you’re not using a huge chunk of your income to cover debts, which could mean you have more wiggle room in your budget. Lenders like to see a DTI ratio of 30% or less, but some are OK with higher ratios. On the flip side, a higher DTI ratio might make it tougher to get new loans and could lead to you paying higher interest rates.