Debt to Income Ratio Calculator

What is a Debt to Income Ratio Calculator?

A Debt to Income Ratio (DTI) Calculator is a financial tool that helps individuals assess their financial health by comparing their monthly debt payments to their monthly income. This ratio is crucial for understanding one's debt burden and is often used by lenders to evaluate a borrower's ability to manage monthly payments and repay debts.

The Formula

The Debt to Income Ratio is calculated using the following formula:

\[ DTI = \frac{\text{Total Monthly Debt Payments}}{\text{Gross Monthly Income}} \times 100\% \]

Where:

• \(DTI\) = Debt to Income Ratio
• Total Monthly Debt Payments = Sum of all monthly debt obligations
• Gross Monthly Income = Total monthly income before taxes and other deductions

Calculation Steps

To calculate your Debt to Income Ratio, follow these steps:

1. Sum up all your monthly debt payments (e.g., mortgage, car loans, student loans, credit card minimums)
2. Determine your gross monthly income
3. Divide your total monthly debt payments by your gross monthly income
4. Multiply the result by 100 to get the percentage

Example and Visual Representation

Let's work through an example:

• Total Monthly Debt Payments: $1,500
• Gross Monthly Income: $5,000

Applying the formula:

\[ DTI = \frac{\$1,500}{\$5,000} \times 100\% = 0.3 \times 100\% = 30\% \]

This means the Debt to Income Ratio is 30%.

Visual representation of the DTI:

This visual representation illustrates:

• The red portion (30%) represents the share of income allocated to debt payments
• The green portion (70%) represents the remaining available income