Determining Your Debt-to-Income Ratio

debt-to-income ratio

Determining Your Debt-to-Income Ratio

Your debt to income ratio is the total amount of all your monthly debt payments (car loan, mortgage, credit card payments) divided by your monthly income. Debt to income ratio is one of the main ways lenders measure your creditworthiness and your ability to manage the debt you take on and the money you plan to borrow. If you want to take the first step to lowering your debt to income ratio is lowering your debt, the experts at Pivotal Wealth can help. 

How Do I Calculate My Debt-to-Income Ratio?

To determine your debt-to-income ratio, you will have to do a bit of math. First, you will need to add up all of your monthly payments. Then, you will need to divide this amount by your gross monthly income. (Your gross monthly income is the amount of money you earn each month before your taxes and any other deductions are subtracted.)


Borrowers who have had higher debt-to-income ratios might have run into trouble when it comes to making monthly payments in full and on time. If you wish to be approved for a qualified mortgage, you will need to have a  debt-to-income ratio of 43% or less. To reduce your debt-to-income ratio, you can either increase your income or reduce your monthly payments.

Does My Debt-to-Income Ratio Affect My Credit Score?

Here’s some good news: your debt-to-income ratio does not affect your credit score! However, your credit utilization ratio does. Your credit utilization ratio is the amount of credit you’re using compared to your available credit limits. An ideal credit utilization rate should be around 30%.

Understanding Your Debt-to-Income Ratio

Here is a general breakdown of what your debt-to-income ratio might mean for you financially, based on percentage.

  • If your DTI ratio is less than 36%, your debt is likely to be manageable when compared to your income, and accessing new lines of credit should be easy. 
  • If your DTI ratio is between 36% and 42%, your potential lenders may be concerned about your ability to repay new lines of credit, so you may have trouble if you want to borrow money.
  • If your DTI ratio is between 43% and 50%, paying off this amount of debt will likely be difficult, and creditors will most likely decline applications for increased credit or new loans. 
  • If your DTI ratio is over 50%, your borrowing options will be extremely limited. You should seek debt reduction assistance from a debt relief agency. 

Improve Your Debt-to-Income Ratio by Eliminating Debt

When you eliminate your debt, your debt-to-income ratio will drastically improve! The team of financial professionals at Pivotal Wealth have the experience and expertise needed to help you become debt-free. Give us a call today to start your journey to financial freedom.

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Matt Lovelady is a co-founder and managing vice president of Pivotal Wealth. He has launched multiple businesses in the financial services space and is passionate about helping people become debt-free, build their wealth, and plan effectively for their retirement.