How to Figure Debt Ratio

Your debt ratio, which is often referred to as "debt-to-income ratio," is a measurement of how much you owe in relation to how much money you make. This measurement is important in terms of credit. If your debt ratio is too high, potential lenders may not approve you for a loan. The general rule is that your debt ratio should be 36 to 38 percent or less. Having a lower debt ratio shows that you probably are a good candidate for a loan or credit card because you currently make enough money pay back the loan for which you are applying. You can perform a few simple calculations to determine your debt ratio.

Instructions

1

Figure out exactly how much your monthly debt is. For instance, if you currently pay $400 for a car payment and $100 for a student loan, your monthly amount for debt would be $500.

2

Figure out your gross monthly income. This means how much money you have coming in before taxes or any deductions. For this example, you could say that your monthly income is $3000.

3

Divide your debt by your income. In this example you would perform the following equation:
500 / 3000 = .166666

4

Round the figure to two digits. Therefore .166666 would be rounded to .17.

5

Multiply the number from step 4 by 100 in order to find your debt ratio. For instance, .17 multiplied by 100 would be 17. Your debt ratio in this example would be 17 percent.