How to Configure Debt Ratio

The debt ratio is a simple percentage used to determine the level of debt a person has compared with the level of income. This number is expressed as a ratio or a percentage. Banks generally use the percentage when figuring a debt ratio for an individual applying for a loan.

Instructions

1

Using your calculator, add all of your pre-tax monthly income, including interest on savings, retirement, Social Security and work-related income. Write your total on the paper. For purposes of this example, the total income is $3,000.

2

Add all of your monthly debt payments. Include debts such as car loans or leases, personal loans, mortgage, mortgage taxes and insurance, credit cards and medical bills. Do not include monthly bills, such as utilities, health insurance, entertainment or food. Write this total on paper. In this example, the total debt payment is $500.

3

Enter your total monthly debt payments into the calculator.

4

Push the divide button on your calculator.

5

Enter the total monthly pre-tax income into the calculator.

6

Push the "total" or "equals" button on the calculator.

7

Look at the quotient, or answer, on the calculator. For this example, with income of $3,000 and debt of $500, the quotient reads 0.1666666667.

8

Write this number down, rounding the second number after the decimal point if needed. For example, write down 0.17.

9

Move the decimal point to the right 2 spaces to find the percentage. In this example, the debt ratio is 17 percent.