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Your Debt-to-Income Ratio (DTI) compares how much you owe each month to how much you earn.
In Depth
The Debt-to-Income Ratio is calculated by adding up all your monthly debt payments (like credit cards, car loans, and student loans) and dividing that sum by your gross monthly income (before taxes). A lower DTI indicates less risk to lenders, making it easier to qualify for loans or better interest rates. A higher DTI suggests you might be overextended, which can make it harder to borrow money. Generally, a DTI of 36% or less is considered good, though this can vary by lender and loan type.
Example
If your monthly debt payments are $1,000 and your gross monthly income is $4,000, your Debt-to-Income Ratio is 25%.