Ehow.com community member Cecily K tells us how:
How to Calculate Debt-to-Income Ratio
Debt-to-Income Ratio is a number expressed as a percentage reflecting how much of your income is leveraged by debt. In other words, it reveals how much of your hard earned money is being paid to creditors instead of you. Mortgage lenders use your debt-to-income ratio when approving buyers for home loans. The lower your debt-to-income ratio is, the better your financiall standing.
Things You’ll Need:
- Financial Statements
- Recent Pay Stubs
- Calculator
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Step 1
Determine your debt load by adding up your monthly debt payments (car loans, credit cards, student loans, etc) excluding your rent or mortgage payments.
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Step 2
Determine your gross monthly income from your recent pay stubs (before taxes).
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Step 3
Divide your total debt load (from Step 1) by your monthly gross income (in Step 2).
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Step 4
Multiply the decimal (from Step 3) times 100 to determine your debt-to-income ratio as a percentage.
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Step 5
Repeat the process annually to track your progress.