Payoff Strategy
Your Debt-to-Income Ratio, and Why It Beats a Credit Score
How to calculate DTI in two minutes, what each range means to a lender, and the two levers that actually move it.
Your debt-to-income ratio is the number lenders use to decide whether you can afford another payment, and the number you should use to decide whether you are in trouble. It takes two minutes to calculate and it is more honest than a credit score.
The calculation
Add up the minimum monthly payments on your debts, divide by your gross monthly income, and multiply by 100.
Include: mortgage or rent, property taxes and insurance if escrowed, auto loans, student loans, credit card minimums, personal loans, child support and alimony, and any co-signed loan payments.
Exclude: utilities, groceries, phone bills, insurance premiums you pay separately, and other living expenses. Lenders leave them out, which is precisely why a "healthy" ratio can still feel unaffordable.
Gross income means before tax. Use our debt-to-income calculator to run it with both gross and take-home figures, since the take-home version is the one that tells you how your month will actually feel.
What the numbers mean
| Ratio | How lenders read it | What it usually feels like |
|---|---|---|
| Under 20% | Excellent | Comfortable, room to save |
| 20 to 35% | Good | Manageable with a budget |
| 36 to 43% | Acceptable, near the mortgage ceiling | Tight, little margin for surprises |
| 44 to 49% | High risk, few approvals | One setback from missed payments |
| 50% and up | Generally not approvable | Structurally unsustainable |
The 43 percent line is not arbitrary. It comes from the ability-to-repay and qualified mortgage framework that emerged from the mortgage rules the Consumer Financial Protection Bureau wrote after the financial crisis, which requires lenders to verify that a borrower can actually repay. The bureau's explainer on what a debt-to-income ratio is covers how lenders apply it.
Front-end and back-end
Mortgage lenders look at two versions. The front-end ratio counts only housing costs against income, and the classic guideline is 28 percent or less. The back-end ratio counts all debt payments and is the one usually meant by "DTI." A borrower can pass one and fail the other, and the back-end number is where credit card balances do their damage.
How to move it
There are only two levers, and they are not equally fast.
Reduce the payments. Paying off a small loan entirely removes its whole payment from the numerator, which moves DTI more than shaving a large balance does. This is one of the few places where the snowball method has a mechanical advantage as well as a psychological one, and our payoff strategy guide works through the trade-off. Refinancing to a lower rate or a longer term also lowers the monthly figure, though a longer term means paying more in total.
Increase the income. Slower, but it compounds with everything else. Note that lenders generally want a two year history for variable income such as self-employment or bonuses, so a raise counts immediately while a side business may not.
What does not help: closing credit cards you have paid off. That changes available credit, not payments, so your DTI stays the same while your utilization ratio gets worse.
When a high ratio means it is time for help
If your DTI is above about 45 percent on unsecured debt alone, or you are making minimum payments and the balances are not falling, arithmetic rather than discipline is the problem. That is the point at which a debt management plan, settlement, or a bankruptcy consultation deserves a serious look, and our comparison of the options lays out what each costs.
For context on where you sit relative to everyone else, the Federal Reserve publishes household debt service ratios in its household debt service and financial obligations series, which tracks debt payments as a share of disposable income nationally. It is a useful reminder that the aggregate number is far lower than most struggling households assume, and that being well above it is a signal worth acting on.