Your Debt-to-Income ratio is the percentage of your monthly gross income that goes toward paying debts. DTI, as it is referred to, is a one of the key considerations that lenders take into account to assess if you are credit worthy or if you are a credit risk.
Here’s a quick guide that will help you determine yours.
Add all payments you make on any debt you may have including
- Minimum Credit Card payments
- Rent OR Mortgage (include Principal and Interest, Property Taxes, Insurance, HOA)
- Car Payment
- Any loan obligations (student loans, short term loans, etc)
- Child support or Alimony paid
Deduct the total of your debts from you total Income each month. Include any alimony, bonuses, overtime pay, etc.
Divide your total DEBT by your total income = Your Debt to Income ratio.
What your Debt-to-Income Ratio means:
36% or less: This is a healthy debt load to carry for most people.
37%-42%: Not bad, but start paring debt now before you get in real trouble.
43%-49%: Financial difficulties are probably imminent unless you take immediate action.
50% or more: You’re in the danger zone. Get professional or legal help to help reduce or eliminate your debt.
Most Americans are in the 41-49% range, a zone where financial trouble is imminent. A Debt-to-Income Ratio higher than 50% is living dangerously as this often means that there is little money left over after paying off debts and living expenses.
If your debt-to-income ratio doesn’t paint the picture of economic health that you’d prefer to see, you’ll need to take steps to improve the picture. To find out how to move in the right direction, schedule a free consultation with me at any of my convenient locations in Glendale, West Covina, Cerritos or Valencia. Or call my office at 866.477.7772.