What is your debt-to-income ratio? Find out in 60 seconds.
Your debt-to-income (DTI) ratio is one of the most important indicators of your financial health. It tells you what percentage of your monthly income goes toward paying debt — and whether that percentage is putting your financial future at risk.
What is a good debt-to-income ratio?
Your debt-to-income ratio (DTI) tells you what percentage of your gross monthly income goes toward paying debt. Here is what each range means in practice:
Under 24% — Good. This is a healthy place to be. Lenders look favorably on borrowers in this range, and a ratio under 27% typically meets the threshold for mortgage approval.
25%–35% — Manageable. Not unusually high if you already carry a mortgage, but there is little room for the unexpected. A medical hardship or an unplanned expense could push your situation out of control quickly. Avoid adding new debt.
36%–45% — Elevated. At this level, you could be on pace to carry debt for many years. Limiting expenses to necessities and taking action now — before things compound — is strongly recommended.
46% or more — Aggressive action needed. Debt at this ratio will not resolve itself through minimum payments alone. Reducing the principal balance directly is necessary to avoid a path toward bankruptcy.
For anyone in the 36%+ range, debt settlement is worth understanding — it addresses the principal directly, which minimum payments do not.
