What is a Good Debt-to-Income Ratio? (2024)

In addition to your credit score, your debt-to-income (DTI) ratio is an important part of your overall financial health. Calculating your DTI may help you determine how comfortable you are with your current debt, and also decide whether applying for credit is the right choice for you.

When you apply for credit, lenders evaluate your DTI to help determine the risk associated with you taking on another payment. Use the information below to calculate your own debt-to-income ratio and understand what it may mean to lenders.

Our standards for Debt-to-Income (DTI) ratio

Once you’ve calculated your DTI ratio, you’ll want to understand how lenders review it when they’re considering your application. Take a look at the guidelines we use:

What is a Good Debt-to-Income Ratio? (1)35% or less: Looking Good - Relative to your income, your debt is at a manageable level

You most likely have money left over for saving or spending after you’ve paid your bills. Lenders generally view a lower DTI as favorable.

36% to 49%: Opportunity to improve

You’re managing your debt adequately, but you may want to consider lowering your DTI. This could put you in a better position to handle unforeseen expenses. If you’re looking to borrow, keep in mind that lenders may ask for additional eligibility criteria.

50% or more: Take Action - You may have limited funds to save or spend

With more than half your income going toward debt payments, you may not have much money left to save, spend, or handle unforeseen expenses. With this DTI ratio, lenders may limit your borrowing options.

What is a Good Debt-to-Income Ratio? (2)

Use our calculator to check your debt-to-income ratio


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This calculator is for educational purposes only and is not a denial or approval of credit.

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What is a Good Debt-to-Income Ratio? (2024)

FAQs

What is a Good Debt-to-Income Ratio? ›

If you're looking for a loan, you'll likely need a DTI ratio of 43% or lower to qualify for reasonable terms. But, the lower it is, the better. That's not just the case in terms of your ability to borrow, but also in terms of your financial stability. If your ratio is higher than 35%, it's likely time to act.

What is the perfect debt-to-income ratio? ›

35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.

Is 50% an acceptable debt-to-income ratio? ›

A good debt-to-income ratio is below 43%, and many lenders prefer 36% or below. Learn more about how debt-to-income ratio is calculated and how you can improve yours.

Is 20% debt-to-income ratio good? ›

To get the ratio as a percentage, you would then multiply 0.5 x 100 = 50%. Your DTI would be 50%. The ideal DTI varies by lender, type of loan and loan size. Generally, a DTI of 20% or less is considered low and at or below 43% is the rule of thumb for getting a qualified mortgage, according to the CFPB.

What is the ideal debt ratio? ›

Do I need to worry about my debt ratio? If your debt ratio does not exceed 30%, the banks will find it excellent. Your ratio shows that if you manage your daily expenses well, you should be able to pay off your debts without worry or penalty. A debt ratio between 30% and 36% is also considered good.

What is a too high debt-to-income ratio? ›

Key takeaways

Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.

What is the ideal mortgage to income ratio? ›

The most common rule for housing payments states that you shouldn't spend more than 28% of your gross income on your housing payment, and this should account for every element of your home loan (e.g., principal, interest, taxes, and insurance).

Is a 6% debt-to-income ratio good? ›

Your debt-to-income (DTI) ratio is how much money you earn versus what you spend. It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”

What is the maximum debt-to-income ratio that qualifies as healthy? ›

Debt-to-income ratio of 36% or less

With a DTI ratio of 36% or less, you probably have a healthy amount of income each month to put towards investments or savings. Most lenders will see you as a safe bet to afford monthly payments for a new loan or line of credit.

Does rent count in debt-to-income ratio? ›

Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt.

How much credit card debt is too much? ›

The general rule of thumb is that you shouldn't spend more than 10 percent of your take-home income on credit card debt.

How can I lower my debt-to-income ratio quickly? ›

To do so, you could:
  1. Increase the amount you pay monthly toward your debts. Extra payments can help lower your overall debt more quickly.
  2. Ask creditors to reduce your interest rate, which would lead to savings that you could use to pay down debt.
  3. Avoid taking on more debt.
  4. Look for ways to increase your income.

How much of my paycheck should go to credit card debt? ›

Today our question is, “How much debt is too much debt?” And really, at Consolidated Credit, we think any amount of debt is too much. But ideally you should never spend more than 10% of your take-home pay towards credit card debt.

What is the ideal debt-to-income ratio? ›

35% or less is generally viewed as favorable, and your debt is manageable. You likely have money remaining after paying monthly bills. 36% to 49% means your DTI ratio is adequate, but you have room for improvement. Lenders might ask for other eligibility requirements.

How much debt is healthy? ›

Ideally, financial experts like to see a DTI of no more than 15 to 20 percent of your net income. For example, a family with a $250 car payment and $100 of monthly credit card payments, and $2,500 net income per month would have a DTI of 14 percent ($350/$2,500 = 0.14 or 14%).

What is a healthy bad debt ratio? ›

Lenders prefer bad debt to sales ratios under 0.4 or 40%. However, most companies prefer to have much lower numbers than this. Unless you have no bad debt, there is room to improve.

Is a debt ratio of 75% bad? ›

Interpreting the Debt Ratio

If the ratio is over 1, a company has more debt than assets. If the ratio is below 1, the company has more assets than debt. Broadly speaking, ratios of 60% (0.6) or more are considered high, while ratios of 40% (0.4) or less are considered low.

Is a 14% debt-to-income ratio good? ›

Ideally, financial experts like to see a DTI of no more than 15 to 20 percent of your net income.

Is 22 percent debt-to-income ratio good? ›

Generally, a DTI ratio of 45% or below is considered acceptable if you meet certain credit score and down payment requirements, while a ratio of 36% or below is considered very good. There are also some mortgage lenders that accept DTI ratios as high as 50%, depending on the type of loan you apply for.

References

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