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It’s hard to know whether you’re doing a good job at curbing your debt, if you could do better, or if you could do A LOT better. The best way to do that is to determine your Debt-to-Income (DTI) ratios for your consumer debts (auto loans, student loans, credit cards, etc.), housing debt, and total debt. Let’s assess it all now.
This includes all monthly debt payments, like auto loans, student loans, credit cards — everything but your mortgage or rent — divided by your monthly income after taxes. You want your Consumer DTI to be below 20%.
This is simply your monthly housing payment divided by your pre-tax income. You want your Housing DTI to be below 28%.
This is a total of all your monthly debt payments, including your housing, divided by your pre-tax income. You want your Total DTI to be below 36%.
Click here to download the DTI Worksheet.
If you’re above any of your DTIs, this is your chance to do something about it before it becomes a real financial strain. If you’re within your DTIs, good job! Keep it up!
NOTE: These ratios are only general rules of thumb, and keeping your debt levels within them is not guaranteed to provide financial success. You also shouldn’t you feel compelled to incur debt up to these levels. Debt is definitely a case where less is more!
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