How to Calculate Your Debt-To-Income Ratio
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If you’re working on paying off your debt, you know that there are a lot of factors to consider when creating a repayment plan: how many credit accounts you have, what your interest rates are, when your payments are due each month, and so on.
But for many consumers, their debt-to-income (DTI) ratio is a helpful—but often overlooked—tool for measuring their own ability to repay their debts successfully. Knowing your DTI can give you insight as to how long it might take you to repay your debts and whether you can afford to take on more debt.
While it’s helpful for you as a borrower to know what your DTI is, it’s also a tool that lenders use to determine your likelihood of being able to repay your debts each month. That is, your DTI is as important to your own budgeting and debt repayment plan as it is to any potential lenders you’ll borrow from in the future.
What is a debt-to-income ratio?
Your DTI ratio is exactly what it sounds like: the amount you owe each month compared to the amount you make. DTI ratios are percentages that represent your gross (pre-tax) monthly income divided by the total amount of debt you owe each month.
Calculating your debt-to-income ratio