Your particular ratio in addition to your overall monthly income and debt, and credit rating are weighed when you apply for a new credit account. Standards and guidelines vary, most lenders like to see a DTI below 35─36% but some mortgage lenders allow up to 43─45% DTI, with some FHA-insured loans allowing a 50% DTI.
Your debt-to-income (DTI) ratio is how much money you earn versus what you spend. It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”
Debt-to-income ratio of 36% or less
With a DTI ratio of 36% or less, you probably have a healthy amount of income each month to put towards investments or savings. Most lenders will see you as a safe bet to afford monthly payments for a new loan or line of credit.
Average American debt payments in 2024: 11.5% of income
The most recent debt payment-to-income ratio, from the second quarter of 2024, is 11.5%. That means the average American spends nearly 12% of their monthly income on debt payments.
Running up $50,000 in credit card debt is not impossible. About two million Americans do it every year. Paying off that bill?
Key takeaways
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
A 75% debt ratio means that 75% of a company's assets are financed by debt. While it indicates significant leverage, whether it's good or bad depends on the industry and the company's ability to manage debt. High ratios may increase financial risk but can also boost returns during favorable conditions.
The average debt an American owes is $104,215 across mortgage loans, home equity lines of credit, auto loans, credit card debt, student loan debt, and other debts like personal loans. Data from Experian breaks down the average debt a consumer holds based on type, age, credit score, and state.
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.
If your monthly income is $2,500, your DTI ratio would be 64 percent, which might be too high to qualify for some credit cards. With an income of roughly $3,700 and the same debt, however, you'd have a DTI ratio of 43 percent and would have better chances of qualifying for a credit card.
In this case, the Debt-to-Assets ratio is 0.5, indicating that 50% of the company's assets are financed by debt. The Debt-to-Assets ratio provides insights into the company's leverage and financial risk.
These businesses will have a low debt ratio (below . 5 or 50%), indicating that most of their assets are fully owned (financed through the firm's own equity, not debt). A high risk level, with a high debt ratio, means that the business has taken on a large amount of risk.
FHA loans for higher DTI
FHA loans are known for being more lenient with credit and DTI requirements. With a good credit score (580 or higher), you might qualify for an FHA loan with a DTI ratio of up to 50%. This makes FHA loans a popular choice for borrowers with good credit but high debt-to-income ratios.
It does not include health insurance, auto insurance, gas, utilities, cell phone, cable, groceries, or other non-recurring life expenses. The debts evaluated are: Any/all car, credit card, student, mortgage and/or other installment loan payments.
The base FICO Scores range from 300 to 850, and the good credit score range is 670 to 739. FICO creates different types of consumer credit scores.
Good debt is money you borrow for something that has the potential to increase in value or expand your potential income. For example, a mortgage may help you buy a home that can appreciate in value. Student loans may increase your future income by helping you get the job you've wanted.
Therefore, the only way to improve your debt ratio is to either reduce your housing expenses, increase your income, reduce your debts, or a combination of these 3 factors. It may be difficult to reduce the cost of rent or mortgage and/or increase your income in the short term.
If your DTI ratio falls between 36% and 41%, you may still be in good shape. This range is generally acceptable to most lenders, but you still might want to look for ways to lower your debt. A DTI ratio between 43% and 50% means you may want to take a careful look at your debt.
Key Takeaways
Investors usually look for a company to have a debt ratio between 0.3 (30%) and 0.6 (60%). From a pure risk perspective, debt ratios of 0.4 (40%) or lower are considered better, while a debt ratio of 0.6 (60%) or higher makes it more difficult to borrow money.
What Is a Good Debt-to-Income Ratio? As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28%–35% of that debt going toward servicing a mortgage.
Dentists' debt-to-income ratios worse than other health workers. Though school debt consistently exceeded income for healthcare occupations -- except for physicians -- between 2017 and 2022, dentists had the highest debt-to-income ratios. The study was published in the American Journal of Pharmaceutical Education.
There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.
"Assuming that your mortgage or rent are going to consume the lion's share of that ["needs"] category, I recommend keeping credit card payments below 10% of your monthly take-home pay if you aren't in a position to affordably pay off your entire balance each month," he says.