1. What is Debt-to-Income Ratio?

The Debt-to-Income (DTI) ratio is a personal finance measure that compares an individual's monthly debt payments to their monthly gross income. It is expressed as a percentage and is used by lenders to assess a borrower's ability to manage monthly payments and repay debts.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( \text{Total Debt Payments} \) — Sum of all monthly debt obligations (mortgage, car loans, credit cards, etc.)
• \( \text{Gross Income} \) — Total monthly income before taxes and deductions
• \( DTI \) — Debt-to-Income ratio expressed as a percentage

Explanation: The ratio indicates what percentage of your gross monthly income goes toward paying debts. Lower percentages indicate better financial health.

3. Importance of DTI Calculation

Details: Lenders use DTI ratios to evaluate creditworthiness. A lower DTI shows you have a good balance between debt and income, making you a more attractive borrower. Most lenders prefer a DTI ratio of 36% or less.

4. Using the Calculator

Tips: Enter total monthly debt payments and gross monthly income in your local currency. Both values must be positive numbers. The calculator will compute your DTI percentage automatically.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good DTI ratio?
A: Generally, a DTI below 36% is good, 36-43% is acceptable but may limit loan options, and above 43% may make it difficult to qualify for loans.

Q2: What debts are included in DTI calculation?
A: Include all monthly debt obligations: mortgage/rent, car payments, credit card minimums, student loans, personal loans, and other recurring debts.

Q3: How can I improve my DTI ratio?
A: You can improve your DTI by paying down existing debts, increasing your income, or avoiding taking on new debt.

Q4: Is DTI the same as debt-to-credit ratio?
A: No, DTI compares debt payments to income, while debt-to-credit ratio compares credit card balances to credit limits.

Q5: Do lenders use front-end or back-end DTI?
A: Most lenders use back-end DTI which includes all debt payments. Front-end DTI typically only includes housing-related expenses.