How to Find Out Your Debt to Income Ratio

The debt-to-income ratio is your total monthly debt and housing payments divided by your gross monthly income, expressed as a percentage. It tells you how easily you can make your monthly payments. A high ratio may indicate that your monthly expenses are becoming unmanageable, which may discourage lenders from lending you any more money.

Instructions

1

Add your monthly debt payments, such as credit card bills, car loan or lease payments, student loan payments and minimum payments on lines of credit.

2

Add your monthly housing expenses. Start with your monthly rent payments or mortgage payments (principal, interest and insurance), depending on whether you rent or own your home. Add applicable condo fees and property taxes. Do not include expenses for food, clothes or travel.

3

Calculate your total monthly payments by adding the debt payments and housing expenses. For example, if your debt payments are $100 and housing expenses are $75, your total monthly payments are $175.

4

Calculate your gross monthly income, or income before taxes. Add your annual gross income from all sources. Divide that number by 12 to get your gross monthly income.

5

Calculate your debt-to-income ratio. This equals the debt and housing payments divided by the gross income, expressed as a percentage. To conclude the example, if your monthly income is $500, the ratio equals $175 divided by $500, expressed as a percentage, or 35 percent.

6

Monitor this ratio regularly. Take steps to lower it if it's 40 percent or higher. Increase the monthly debt payments. Avoid taking on more debt. Maintain as close to a zero balance on your credit cards as possible. Postpone major purchases until you have built up some savings.