Debt to Income Ratio

In this day in age, it's hard to navigate through your financial life without incurring a little bit of debt along the way. The big question is: How much debt is too much? That's easier to figure out than you may think. There are many online resources that can help you determine you debt to income ratio with easy to understand graphs and charts. All you have to do is enter your income and debts.

Your debt ratio is the percentage of your gross monthly income that goes toward paying your debts. This calculation is especially important when applying for a home mortgage. Many lenders look at two types of debt ratios. One is called a front ratio and includes all debt and housing costs. The second is back ratio, which calculates your non-mortgage debt ratio. Ideally lenders look for a front ration of no more than 36% and a back ratio of 28%. However, there are many factors that go into determining your credit worthiness.

Before using a debt to income ratio calculator, first you must know or gather all your sources of income and who you're indebted to and for how much. Your monthly debt obligations may include a mortgage, car payments, credit card payments, student loans, alimony or child support. Your income can include salary and bonuses paid monthly. If your bonus is paid quarterly, make sure you divide the annual amount to correctly reflect upon your monthly income. To obtain your debt ratio, simply divide your total monthly debt payments by your monthly income. The goal is to get the number as low as possible.

Though debt can be overwhelming at times but don't get discouraged. There are lots of online tips and calculators to help you set goals so you can get out of debt faster.