Lenders ask a simple question before they lend: of the money coming in each month, how much is already promised to other debts? Your debt-to-income ratio, or DTI, is their shorthand for the answer.

The definition

The Consumer Financial Protection Bureau puts it this way: “Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income” (CFPB).

Two words in that sentence do a lot of work:

• Monthly debt payments means the required payments on your debts, not your total balances.
• Gross income means what you earn before taxes and other deductions, not your take-home pay.

The formula

DTI = total monthly debt payments ÷ gross monthly income × 100

The CFPB’s own example: someone pays $1,500 a month on a mortgage, $100 on an auto loan and $400 on other debts, for $2,000 in total. Their gross monthly income is $6,000. Their DTI is 33%.

A worked example (hypothetical)

Say a renter earns $57,600 a year before taxes, or $4,800 a month gross. These are made-up figures.

$980 ÷ $4,800 = 0.204, so the DTI is about 20%.

Now say the lender also counts housing. If rent is $1,300, total monthly obligations become $2,280, and the ratio is about 48%. Whether housing costs go in depends on the lender and the type of loan, which is why the same person can see different DTI figures from different lenders. Mortgage lenders look at the payment on the home you’re buying.

What counts and what usually doesn’t

Generally included:

• Mortgage or other housing loan payments
• Auto loans
• Student loans
• Minimum payments on credit cards
• Personal loans and other installment loans
• Required support payments, in many cases

Generally not included:

• Utilities, phone and insurance bills
• Groceries, gas and everyday spending
• Taxes taken from your paycheck

Each lender sets its own list, so if a number matters, ask the lender how it calculates DTI.

Is there a “good” DTI?

The CFPB doesn’t give a single target for personal loans. It notes that “different loan products and lenders will have different DTI limits.” A lower ratio generally means more room in your budget, and more room for a lender to approve a new payment. Lenders publish their own limits where they choose to, and those can change.

Beyond the lender’s view, DTI is a useful personal check. If debt payments eat a large share of your gross pay, the share of your take-home pay is even larger, and a surprise expense has fewer places to go.

How DTI can come down

There are only two levers: lower the payments or raise the income.

• Pay off a small debt completely. Clearing a card removes its minimum from the calculation. In the example above, paying off a card with a $45 minimum lowers DTI from about 20.4% to about 19.5%.
• Refinance or consolidate to a lower payment. A debt consolidation loan with a lower rate or longer term reduces the monthly figure, though a longer term can raise total interest.
• Avoid new debt before applying. A new car loan or card balance raises the ratio right before a lender looks.
• Document all income. Under Regulation B, a lender can’t exclude income just because it’s from part-time work or a pension, and must count alimony or child support to the extent it’s likely to be paid consistently, if you rely on it (12 CFR 1002.6).

A payoff plan helps too. Our debt snowball vs avalanche guide shows how the order you pay debts affects how fast payments drop off.

DTI is not the same as credit utilization

The two get mixed up often, and they measure different things.

• DTI compares monthly debt payments with monthly income. Your income isn’t on your credit report, so a lender works out DTI from your application and documents.
• Credit utilization compares your card balances with your card limits. It comes straight from your credit reports, and scoring models use it.

Someone can have a low utilization and a high DTI (say, a large car loan and student loan with no card balances), or the reverse. A lender may look at both. Paying down a card balance tends to help both numbers at once.

Your plan

1. Find your gross monthly income (annual salary ÷ 12, or average monthly earnings before taxes).
2. List every required monthly debt payment from your statements.
3. Add them up and divide by gross monthly income.
4. Run it a second time including rent or your mortgage payment.
5. Note which single debt, if paid off, would lower the ratio most.

DTI is one of several things lenders weigh. Our guide to personal loan requirements covers the rest.

We explain how the ratio is calculated; we’re not able to say what ratio a particular lender will accept, and this isn’t advice on whether to apply.