# Debt To Income Ratio Calculator: How To Calculate Your Ratio

The Debt to Income Ratio is a good way for creditors to compare your income with the amount of debt you currently have. Most creditors use this tool to determine if extending credit to you will put the creditor at risk. If you have ever applied for a credit card or line of credit, you know that the amount of debt you owe plays a large role in how much credit is extended to you, as well as what type of interest rate you receive. The Debt to Income Ratio is calculated by taking your total monthly debt payments and dividing this amount by your total take home pay. In some cases, some creditors may use gross pay (before taxes) instead of take home pay for this calculation.

### Debt To Income Ratio Calculator: How To Calculate Your Ratio

Following is an example of how the Debt to Income Ratio is calculated:

Susie’s take home pay is \$2000 per month.
Susie’s total debt payments are \$700.

Susie’s debt to income ratio is \$700 / \$2000 = 0.35 or 35%

And here’s an easy, automated way to calculate it — by using Bankrate’s debt to income ratio calculator. Check out this link or click on the image below to try it out.

### Q & A About The Debt To Income Ratio

1. What’s the best percentage to have for a Debt to Income Ratio?

The best Debt to Income Ratio to have is 10% or less. This means that you have a minimal amount of debt and a substantial amount of income. You are in the best position to receive credit cards and other credit with lower rates and excellent terms.

Tip: When you have great credit and have good control of your finances, you can take advantage of great credit card offers such as 0% balance transfer credit cards, as well as cheaper loans such as those from a peer to peer lending site like Lending Club. If you’re interested in what p2p lending networks have to offer, you can sign up with Lending Club through this link.

If your Debt to Income Ratio is between 10%-20%, you are still a good candidate for creditors to extend credit. You may not have the very best terms with creditors, but you are still more likely to receive a lower interest rate on a credit card or line of credit than someone with a much higher debt to income ratio.

If a loan applicant has a Debt to Income Ratio of 20%-35%, a creditor is more likely to investigate further before providing any lines of credit or credit cards to the loan applicant. They may ask for documentation or proof of your income. Typically, if you ratio is this high, your interest rates are in a much higher range for credit cards or credit lines because you are a higher risk for not repaying the debts back.

If you have a Debt to Income ratio of 35% or higher, you are more likely to be denied credit by a lender. This is because you are a very high credit risk. Your credit card or other debt payments make up a large percentage of your take home pay. Therefore, you may get into a situation where you are unable to make these payments at all. If you have a Debt to Income Ratio that is this high, you should think about paying down your debts immediately. This type of ratio may also indicate that you have an issue with spending more money than you make. You may need to seek the assistance of an accredited credit-counseling agency for assistance in paying down debts.

Tip: It’s typically cheaper (and safer) to work out your own debt issues, but if you’re interested in a consultation with third party agents who cover debt counseling, credit management and loan modification matters, then the following services may help. Some of the resources below are free, while others are not:

It’s important that you always do your due diligence before subscribing to any new service or before joining any community.

### 2. How can I improve my Debt to Income Ratio?

Your Debt to Income Ratio can be improved by simply increasing your income and/or paying down your debt balances. The less debt you owe, the better. By not having a large amount of debt, you enable your money to grow and your net worth to build over time. You want to shoot for a Debt to Income Ratio of 10%-20% and no higher than this. Keeping your ratio this low may be difficult at first, especially if you have a high amount of debt. A good strategy is to use the Debt to Income Ratio as a guide to controlling your ongoing debt. By working on your existing loans and by following strategies for keeping your Debt to Income Ratio low, you’ll be on your way to financial success.

### 2 thoughts on “Debt To Income Ratio Calculator: How To Calculate Your Ratio”

1. I’ve got 22,000.00 debt and a combined income of 1300.00 per month. My household bills and groceries for 3 of us cost 1600 per month and we get 500.00 a month from hubby’s SSI check.

I want to begin paying down my debt. When I got into debt and began borrowing, my income also began to slip. I then had only 400 a month income, nothing from anything else. I’m 53 yrs old and nearly lost my house.

I’ve asked for nothing in the way of help, told every creditor that I intend to pay and everything went to their lawyers, but now I’m working a 2nd job so I’ve got enough money to pay my house bill, gas in car, food, water/sewer and PG and E or an my telephone . Do I pay the least large bill first or should I just plunk a few bucks into a jar until it grows so I can pay one debt, then do it to the next, and then to the next and so on.

I nearly died in 2009 but I feel pretty good now. There is nothing more for me to cut out of my budget. I don’t drink or do drugs or go shopping for anything personal. I haven’t for years now. I want to be debt-free. Bankruptcy isn’t an option because the debts I have were due to my agreement with those that gave me credit, my choice. Everyone tells me to file, but with the cost of what bankruptcy is, I could pay off one of my largest debts. It’s not on the table.

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