How to Figure Debt-to-Income Ratios

Calculate your debt-to-income ratio before signing a loan.

Your debt-to-income ratio refers to the percentage of your budget taken up by debt payments. This ratio helps you determine how much you can afford to borrow, but also helps lenders decide how much they are willing to lend you. According to Bankrate.com, lenders look at your debt-to-income ratio with as much scrutiny as they look at your credit score. To find your debt-to-income ratio, you need to know your pre-tax income, which you can find on your pay stubs, and your total monthly debt payments.

Instructions

1. Add the total amount you debt costs you each month. Do not include expenses you incur on a monthly basis, such as gas or rent. For example, if you owe $170 for your student loans and $780 a month for you mortgage, add $170 plus $780 to find your total debt equals $950.

2. Divide your total monthly debt costs by your pretax income. For example, if your pretax monthly income equals $2,900, divide $950 by $2,900 to get 0.3276.

3. Multiply the answer by 100 to get the debt-to-income ratio expressed as a percentage. Finishing the example, multiply 0.3276 by 100 to get a 32.76 percent debt-to-income ratio.

References

• Investopedia: Debt-to-Income Ratio
• Bankrate.com: Debt-to-Income Ratio as Important as Credit Score