Debt to income ratio calculator
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Updated: October 18, 2023
Maintaining a manageable level of debt is crucial for maintaining good financial health. However, it's important to recognize the signs that your debt may be becoming unmanageable. You don’t want to find yourself unable to meet your monthly payments or experience a decline in your credit score. Thankfully, there’s a way to calculate debt to income ratio if you’re worried about accumulating an excessive amount of debt.
Why your debt-to-income (DTI) is so important
Your debt-to-income (DTI) ratio plays a significant role in assessing your financial well-being. By calculating your DTI, you can gauge your comfort level with existing debt and make informed decisions about pursuing additional credit. As well, lenders rely on your DTI when evaluating credit applications to assess the potential risk of extending further credit to you.
Calculate debt-to-income ratio
To calculate your debt-to-income ratio, you need to sum up all your monthly debt payments and divide that total by your gross monthly income. Your gross monthly income refers to the amount of money you earn before any taxes or deductions are withheld. To make it easy for you, you can use our helpful debt-to-income ratio calculator.
Debt-to-Income Ratio
Financial Calculators from
Dinkytown.net
Your monthly income | $0.00 |
Spouse's monthly income | $0.00 |
Mortgage and debt | $0.00 |
Monthly debt payments of $0.00 leave you with $0.00 |
Definitions
Gross amount paid
Your total gross income from your paycheck.
Other income
Any other regular income you receive, such as rental payments or investment income.
House payment
Monthly payment for your home or apartment. For a home payment, include principal, interest, property taxes and insurance (PITI).
Auto payment
Your monthly auto loan payment. This should be for your auto loan only, auto insurance should not be included.
Auto two payment
Any additional auto, truck or RV payments should be entered here.
Credit card payments
Enter the total of all of your credit card payments. For this calculation, please enter the minimum payment amounts, even if you pay off a larger portion of your balance each month.
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Reading the results
Here are the guidelines for reading debt-to-income ratios results:
- A ratio of 34% or less is considered favourable, indicating manageable debt and the ability to cover monthly bills while having money left over.
- A ratio of 35% to 45% is adequate but there’s room for improvement. Lenders may require additional eligibility criteria.
- A ratio of 46% or higher indicates limited funds for saving or spending. This leaves little room to handle unexpected events and limits borrowing options.
What is a good debt-to-income ratio in Canada?
Lenders are generally hesitant to provide loans to individuals who are burdened with substantial debt. A high debt-to-income (DTI) ratio may lead lenders to believe that the borrower may struggle to meet their monthly payment obligations for a new loan. In Canada, lenders typically prefer borrowers with a DTI ratio that does not exceed 42%.
How to lower your debt-to-income ratio
If you’re looking for ways to reduce your DTI score, here are seven tips to try:
- 1.
Create a plan to effectively pay off your credit cards.
- 2.
Boost your monthly debt payments to accelerate your debt reduction. Making extra payments can significantly lower your overall debt.
- 3.
Negotiate with your creditors to lower your interest rates, allowing you to save money that can be used towards helping you reach your financial goals.
- 4.
Consider looking into a debt settlement program.
- 5.
Avoid adding debt, as it leads to even more of a financial burden.
- 6.
Move your money into a higher-interest savings account.
Explore opportunities to increase your income and improve your financial situation, such as starting a side hustle.
Amy Tokic is an SEO content editor for Money.ca. She holds a B.A. in Communications from the University of Windsor. Amy is an award-winning author and has been writing professionally for 15 years, publishing articles in the lifestyle and health sectors. In her free time, Amy loves perusing used book and record stores, and chasing squirrels with wild abandon (a habit attributed to spending too much time with her pooches).
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