DEBT TO INCOME RATIO CALCULATOR
Improve your financial wellness and debt-to-income ratio (DTI)
36% to 43%
needs work35%
or less is good44%
or more is highKey takeaways:
DTI stands for debt-to-income ratio. It’s the percentage of your monthly income that goes toward paying debt.
A DTI calculator helps you estimate your DTI and check your financial situation.
You can use a DTI calculator to track your progress as you pay down your debt.
DTI is one way to determine how affordable your debt is at your income level. DTI stands for debt-to-income ratio, and you can easily measure it with a DTI calculator. When it comes to DTI, the lower, the better.
What is a DTI calculator?
A DTI calculator helps you determine your DTI by dividing your total monthly debt payments by your total gross (before-tax) income. Then, it tells you if your DTI is on the high side or the low side. A lower DTI could mean that you can afford to take on more debt and still be able to pay your bills. A higher DTI could mean that your budget is full, and a new debt payment might be unaffordable. DTI is a pretty simple calculation. However, it only works if you understand what to include in your debt payments and what to leave out. You also need to correctly enter your monthly income, and we’ll show you how to do that.
How to use a DTI calculator
The Achieve DTI calculator is easy to use. First, enter your monthly income. Click on the little 🛈 symbol tol see examples of income to include. It’s important that you use your gross (before-tax) income amount to get an accurate result—not your take-home pay. If you’re self-employed, use your taxable income, not your income before deductions. Add up all sources of income and enter the total.
When entering your total monthly debt payments, click the little 🛈 again to see a list of debts you should include. That means minimum credit card payments and monthly loan payments, alimony, child support, housing (rent or monthly mortgage payment including property taxes, homeowners insurance, and monthly HOA dues), and any other payment for debt.
Add up these expenses and enter the total. Don’t include payroll deductions for your 401(k) or other retirement plan, health insurance, or income tax. And don’t include general living expenses like food, utilities, gas or other transportation, or entertainment. Don’t include business expenses if you’re self-employed.
How to understand DTI ratio results
In general, lenders like to see a DTI under 36%. Higher DTIs may be acceptable but could make you ineligible for certain terms, like the lender’s lowest interest rate.
It’s important to understand that DTI guidelines are not always hard lines. Having a really low DTI can compensate somewhat for okay-ish credit scores when you apply for a loan, and great credit can compensate for an okay-ish DTI.
Also, DTI doesn’t tell you the full story. You might have an okay DTI because your credit card minimum payments are low. But you might be carrying large balances and paying a lot of interest. And DTI doesn’t include your living costs. Gasoline, utilities, or taxes might be higher than normal where you live, or you might have a large family.
Finally, DTI won’t tell you the impact of future plans unless you run the calculation with those changes. That’s where a DTI calculator can be really helpful. You can see the impact of changes that you’re considering before you commit to them.
DTI is a helpful checkup on your finances. However, it’s not a substitute for a budget.
What is a front-end DTI?
The front-end ratio or front-end DTI is a term used by mortgage lenders. Front-end ratio refers to your monthly housing cost divided by your gross monthly income. Lenders prefer to see a front-end ratio at 28% or lower, meaning your housing cost is no more than 28% of your income. However, the front-end ratio is much less important than the DTI (also called the back-end ratio), and programs like VA home loans don’t even consider it.
Does DTI affect my credit score?
DTI isn’t part of your credit score because credit scoring models don’t consider your income. What they do include is your payment history (35%) and your credit utilization (30%).
However, low DTI often goes hand in hand with good credit scores because it’s easier to have good payment history and low utilization when you carry less debt.
You get a good payment history by paying your debts on time. People with low DTIs have an easier time managing this because they can afford their payments more easily and are less likely to be derailed by an unexpected expense or interruption in income.
Credit utilization is your credit card balances compared to your credit limits. People with high credit scores tend to have low credit utilization. For instance, someone with low utilization might have a $10,000 credit limit but only use $1,000—just 10%.
Tips to improve your DTI ratio
To lower your DTI, you must either reduce your monthly payments or increase your income.
The debt avalanche or debt snowball are proven ways to get rid of debt faster.
You might refinance or consolidate some or all of your debt to a loan with a lower payment.
Take on a side hustle, more hours at work, or a better-paying job. It’s even more effective if you use the extra income to pay down your debt faster.
You can get by with a high DTI, and many people do. But life is easier with a lower DTI. Who doesn’t like easy?
Debt To Income Ratio FAQs
Here are a few common mistakes when using a DTI calculator:
Using take-home pay instead of before-tax income. Your DTI will come out higher than it actually is.
Including living expenses in your debt payments. Your DTI will come out higher than it is.
Forgetting to include rent in your debts. Your DTI will come out lower than it is.
Failing to include deferred payments like student loans. You’ll have to start paying them someday, so don’t leave them out.
Believing that a good DTI automatically means you're doing great financially. You still need to budget—and to keep your actual spending on-budget.
In general, lenders like to see DTIs under 36%. Borrowers with average credit scores and qualifications can usually get loans with DTIs up to 43%. Those with DTIs over 43% have fewer loans to choose from and generally pay higher interest rates.
DTI is important, but so are credit scores and, for secured loans, your down payment. You can compensate somewhat for a high(ish) DTI with great credit or a big down payment. You can compensate somewhat for a fair credit score or smaller down payment with a low DTI.
Paying off debt instantly changes your DTI, assuming your income is stable and you haven’t taken on additional borrowing. Paying down debt without zeroing your balance may not change your DTI unless it also lowers your minimum payment.
So paying down an installment loan doesn’t lower your DTI because you make the same payment each month, no matter what your balance is.
Your debt-to-income (DTI) ratio is all your monthly debt payments divided by your gross (before-tax) income. Your ratio is one way to determine how affordable your debt is at your income level. Lenders can use your DTI ratio to measure your ability to manage your monthly payments and repay the money you’ve borrowed.
36% or less:
In general, lenders like to see a DTI ratio under 36%, so a ratio in this range is healthy. Lenders are more likely to work with you on a new loan or line of credit.
37-49%:
A DTI ratio between 37 and 49% is okay—not the best, but not the worst. Depending on the number, you may have fewer loans to choose from and/or pay higher interest rates.
50% or more:
A DTI ratio in this range is considered high, and could mean that your budget is full. Because a new debt payment might be unaffordable, lenders may want you to either reduce your debt or increase your income before providing you with a loan or new line of credit.
