How is debt ratio calculated?

Key Findings A company's debt ratio can be calculated by dividing total debt by total assets. A debt ratio greater than 1, 0, or 100% means that a company has more debt than assets, while a debt ratio lower than 100% indicates that a company has more assets than debts. Your debt-to-income ratio (DTI) is the sum of all your monthly debt payments divided by your gross income. This number is one-way lenders measure your ability to manage monthly payments to repay the money you plan to borrow.

The lower your DTI, the better because this shows lenders that you have additional income after your current debt obligations to take on new loan payments. To calculate your DTI, divide all your monthly debt payments by your monthly gross income. To control your DTI, keep an up-to-date list of your debt payments and calculate your DTI each time you pay off a loan or credit card or apply for new credit. However, knowing your DTI and figuring it out is valuable in understanding how to manage your debt when considering applying for a new loan.

To calculate your debt-to-income ratio, establish your total monthly debt and divide that number by your monthly gross income. Specifically, the percentage of your gross monthly income (before taxes) goes toward paying rent, mortgage, credit cards, or other debts. The debt-to-income ratio, often called DTI, indicates how much of your gross income goes toward monthly paying off debts. The more debt you have on credit cards and other loans, and the higher your utilization rate, the more negatively it can affect your credit rating.

The debt-to-income ratio (DTI) measures how much of your monthly income goes toward paying off debts, including housing expenses, personal loans, and credit card payments. When you apply for credit, the lender can calculate your debt-to-income ratio (DTI) based on verified income and debt amounts, and the result may differ from what is shown here. To calculate the debt-to-income percentage, divide your total monthly debt payments by your gross monthly income. From a lender's perspective, it shows how much additional debt you can reasonably assume, considering your current income and debt situation.

Evan Turomsha
Evan Turomsha

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