The formula for calculating your debt-to-income ratio is monthly fixed expenses divided by gross monthly income (before taxes and deductions). Monthly fixed expenses include all debt, such as the following: house payment or lease, credit card and other revolving credit balances that it will take you longer than 6 months to pay off; car payments, alimony, child support, etc.
Do not include grocery, telephone, and utility bills or any debt in the calculation that will be paid off in the next few months.
Sample debt to income ratio calculation:
Gross monthly household income: $5,000
Fixed expenses: $1,560
[house payment $540.00 + car payment $370.00 + credit cards $250.00 + child support $400.00]
Debt-to-income ratio calculation:
$1,560
$5,000 = 31%
A debt-to-income ratio of 31% is considered very high to debt management professionals; however, it is not considered too high for many lenders. Ideally, to budget managers, a debt-to-income ratio should not exceed 20%. Of course, the lower it is the better.
How to Calculate Your Debt to Income Ratio
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