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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
A measure of how much of your monthly income goes toward paying debts - lower is better.
Why It Matters
Your debt-to-income (DTI) ratio tells you how stretched your finances are. If you earn $5,000/month and pay $2,000 toward debts, your DTI is 40%. Lenders use this to approve mortgages - most want 43% or less. For investing readiness, lower is better. A high DTI means more of your income is committed to past decisions, leaving less for building wealth.
Key Points
- Calculate: (Monthly debt payments ÷ Monthly gross income) × 100
- Under 36% is considered healthy; 43%+ can make it hard to get a mortgage
- Reducing high-interest debt often beats investing (guaranteed 20%+ return by paying off credit cards)
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Common Questions
A measure of how much of your monthly income goes toward paying debts - lower is better. Your debt-to-income (DTI) ratio tells you how stretched your finances are. If you earn $5,000/month and pay $2,000 toward debts, your DTI is 40%.
Your debt-to-income (DTI) ratio tells you how stretched your finances are. If you earn $5,000/month and pay $2,000 toward debts, your DTI is 40%. Lenders use this to approve mortgages - most want 43% or less. For investing readiness, lower is better. A high DTI means more of your income is committed to past decisions, leaving less for building wealth.
Calculate: (Monthly debt payments ÷ Monthly gross income) × 100
Under 36% is considered healthy; 43%+ can make it hard to get a mortgage
Reducing high-interest debt often beats investing (guaranteed 20%+ return by paying off credit cards)