What is a Debt to Income Ratio?

Your debt to income ratio is a mathematical formula that determines the amount of money you can afford to pay back and therefore borrow.

If you total up all of the bills you pay every month and divide it by your income that number is your debt to income ratio.

For Example:
Let's use easy numbers. Lets say you earn $10,000 per month. When you total up all of your bills they equal $2500 per month.

Your Debt to Income Ratio or DTI to the folks in that industry, is 25%. Based on these numbers you would be using 25% of your income every month to pay your bills or 2500/10000 = .25 .

What is considered a good DTI number?
Below one third or 33% DTI is considered lendable to most lending institutions. The higher that number the less likely you are to get a loan or a good interest rate. Most lenders will not loan you a penny if your DTI is above 50%

The lower your DTI

The more likely you are to get a loan even if you have bad or no credit. This is why a young professional athlete with no credit history can finance a Lamborghini. Their DTI is really low. This is the same reason why someone earning minimum wage but has a 830 credit score cannot finance a new Honda.

Remember

The system is in place to figure out how to justify charging you as much money as they can squeeze out of you. It helps to pay your bills on time and don't borrow more money than you can pay back so that you can maintain a low DEBT TO INCOME RATIO. This will help you when trying to secure credit.

A low DTI also has the HUGE benefit of giving you enough disposable income to live an enjoyable life. This is living within or below your means and it is much less stress in life.

A high DTI means you work to pay bills and you are being grinded up by life.