Monthly debt includes all recurring payments for borrowed money, like minimum credit card payments, car loans, student loans, mortgages/rent (including taxes/insurance), personal loans, child support, and alimony, used to assess your Debt-to-Income (DTI) ratio; it generally excludes daily expenses like groceries, utilities, and gas. Lenders look at these fixed obligations to see how much of your income goes toward repaying creditors.
To calculate your debt-to-income ratio:
Exclude the following from your DTI ratio calculation: Utilities (water, garbage, electricity, gas) Car insurance. Cable and cell phone bills.
Then, calculate your total monthly debt payments, which may include a mortgage, child support, student loan payments, credit card minimums and car loans. (Only debts are used to calculate your DTI — not recurring expenses like groceries, utilities, childcare or insurance premiums.)
For example, the payment on a $5,000 loan with a 30-month repayment term (and an interest rate of 5.50%) is $177.95. If you borrow $10,000 and take 75 months to repay it (with a 5.50% interest rate), your monthly payment will be $157.14. Interest, or the cost of borrowing money, also affects the monthly payment.
It typically includes monthly debt payments such as rent, mortgage, credit cards, car payments, and other debt. Include alimony, child support, or any other payment obligations that qualify as debt. Monthly debt payments are any payments you make to pay back a creditor or lender for money you borrowed.
Average American debt payments in 2025: 11.2% of income
The most recent debt payment-to-income ratio, from the second quarter of 2025, is 11.2%. That means the average American spends about 11% of their monthly income on debt payments.
Types of debt included in the DTI ratio calculation
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 household earning $70,000 — about $10,000 below the median U.S. salary — could comfortably afford to spend about $257,000 on a house, assuming they put 20% down on a 30-year mortgage with a 6.5% rate.
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.
It's partly true: most negative items like late payments and collections are removed from your credit report after about seven years, but the underlying debt often still exists, and bankruptcies (Chapter 7) last 10 years, so your credit isn't entirely "clear" but mostly refreshed from old negatives. The 7-year clock starts from the date of the original delinquency, not when you paid it off or sent to collections, and the debt itself can still be pursued by collectors.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Generally, personal loan borrowers do not owe taxes on a personal loan unless that loan is forgiven or cancelled before paid back in full. That is because while the IRS usually requires taxes to be paid on money you receive, when you take a personal loan, the loan amount is usually not considered to be earned income.
Most buyers who earn $70,000 a year can qualify for houses priced between $210,000 and $290,000. But every borrower is unique. Your exact borrowing power depends on several key factors that lenders evaluate during the mortgage approval process.