Managing Debt-to-Income Ratio

As our bank accounts get hit by both inflation and interest rate hikes, it might be worth double-checking the delicate balance between our obligations and earnings, especially if you're starting to feel the squeeze.

What’s a Debt-to-Income Ratio?

Your debt-to-income (DTI) ratio is a measure of your monthly debt obligations compared with your income streams.

Identify the metric as one of five vital signs of financial independence. "Your DTI ratio affects your creditworthiness to financiers, and it can have a large impact on the cost of borrowing money."

To estimate your DTI, start by adding up all of your monthly debt payments (mortgage, auto and personal loans, credit cards) or "any large, fixed monthly payments you can't avoid," and divide them by your pre-tax monthly income, says Jean-Marie Chan, a certified financial planner and certified public accountant at Money Coach JM. "It says 'debt', but it may not be debt to bear."