How to Determine Debt to Income Ratio

Anytime an individual applies for credit, a lender may consider the credit applicant's debt to income (DTI) ratio, which is the amount of income that's assigned to debt on a monthly basis. Lenders use this ratio to help them evaluate an individual's ability to repay debt. Typically, a person's debt load shouldn't exceed 36 percent of his income. The higher an individual's debt load happens to be increases the likelihood that he may not be able to repay additional debts. It's advantageous to know how to figure your own debt to income ratio, so that you can effectively manage your finances.

Instructions

1

Determine the amount of your gross monthly income. You can locate this on your pay stub; it's the amount before any taxes and deductions.

2

Use a calculator to add up your recurring expenses for each month, such as mortgage or rent, car payments, loans and credit card bills. Don't include utilities, groceries or fuel.

3

Divide your total monthly expenses by your gross monthly income amount. If this calculation equals more than 36 percent, your debt load is too high.

4

Determine how much debt you could carry while maintaining a DTI of 36 percent by multiplying your gross monthly income amount by 36 percent. For example: $3,200 x 0.36 = $1,152.