A debt-to-income ratio is a measure of financial stability calculated by dividing monthly minimum debt payments by monthly gross income. This calculation gives a straightforward depiction of your financial position. Typically, the lower your ratio, the better handle you have on debt. Determining your debt:
- Collect your most recent credit billing statements for current balances
- Outline your total monthly bills using two columns: bill type (such as car loan, mortgage/rent payments, and so on) and monthly payment. Do not include bills such as taxes and utilities in this list.
- Add up the total for all of the monthly payments listed.
- Calculate your monthly before-tax income. If you receive a paycheck every other week, as opposed to twice a month, your monthly gross income is your before-tax income from one paycheck times 2.17.
- Your monthly debt-to-income ratio is calculated by dividing your monthly debt payments by your monthly income. For example, someone...