What is Debt-to-Income Ratio?

Oct 10, 2025

Your debt-to-income (DTI) ratio is the percentage of your pre-tax monthly income that goes toward debt payments. Your DTI, alongside other factors, like your credit history and credit score, can help lenders determine your level of risk and assess your ability to repay a new loan or line of credit.

Let's explore how DTI ratios are calculated, why they matter, what DTI ratios lenders look for and how they impact your credit score.

How is debt-to-income ratio calculated?

You can calculate your DTI by dividing the sum of your monthly debt payments by your gross monthly income (what you earn before taxes).

Start by figuring out your monthly pre-tax income. You may contact your employer or review your pay stubs to see what you earn before taxes are deducted.

Next, calculate the sum of your monthly debt payments, such as:

  • Student loans
  • Credit cards
  • Mortgage payments
  • Car loans

Finally, divide your total debt payments by your gross monthly income.

For example, let’s say your gross monthly income is $5,000. Each month, you pay $200 toward student loans, $500 toward your car loan, and $1,500 toward your mortgage. Your monthly debt payments total $2,200. To get your DTI, you’d divide 2,200 by 5,000, which equals .44, or 44%.

Why is debt-to-income ratio important?

Your DTI can give lenders insight into your overall finances and your ability to manage new debt. Along with other information, like your credit history and credit score, your DTI can help lenders assess what level of risk they’re taking on by approving you for a loan or line of credit. It can also help them determine what interest rate and other terms to offer.

A lower DTI can indicate a good balance between your monthly debt payments and income. It may signal to lenders that you’ll be able to handle additional debt and reliably make monthly payments.

On the other hand, a higher DTI means that a larger proportion of your monthly income is going toward debt payments. That may suggest that you're already overwhelmed by (or close to overwhelmed by) existing debt. Therefore, it may be harder to qualify for new credit or loans.

What debt-to-income ratio do lenders look for?

DTI requirements can vary from one lender to the next. The type of loan or credit you’re applying for may also make a difference.

In general, a lower DTI means you have a better chance of being approved for a loan or line of credit. If your DTI doesn’t meet the lender’s requirements, you may not be approved. Even if you are approved, a higher DTI can also mean a higher interest rate and less favorable terms.

Does your debt-to-income ratio impact your credit score?

Your DTI does not affect your credit score directly. However, these numbers are somewhat related.

For instance, increasing your revolving debt amounts increases your credit utilization, which is the percentage of your total available credit that you’re using. Increasing your credit utilization can lower your credit score. It may also mean increasing your debt payments and thus increasing your DTI ratio.

Both your credit score and DTI ratio can help lenders and creditors determine whether you qualify for a particular financial product, such as a credit card or loan.

What if your debt-to-income ratio is too high?

If your DTI is too high, it can affect your ability to be approved for the loan or line of credit you want.

There are 2 ways to improve your DTI:

  1. Lowering your monthly debt payments
  2. Increasing your gross income

To increase your gross income, you may have to look for a new job, take on a side gig or make the case to your boss that you deserve a raise. However, you may have more control over lowering your monthly debt payments, depending on your budget, income and spending.

Here are 2 methods of efficiently paying off debt and reducing your monthly payments:   

Debt snowball method

With the debt snowball method, you focus on paying off 1 debt at a time, beginning with the smallest and working your way up the largest. Paying off smaller debts first can mean some quick wins early on, which can be very motivating. Here's how to put the debt snowball method into action:

  1. List your debts from smallest to largest
  2. Continue making the minimum payments on everything while focusing any extra income on paying off the smallest debt
  3. Once that debt is paid off, switch your focus to the next-smallest debt, rolling in any funds you were using to pay off the first debt
  4. Continue this strategy until you’ve paid everything off

Debt avalanche method

The debt avalanche method focuses on paying off your highest-interest debt first. That can help save you money on interest in the long run. Here's how to implement the debt avalanche method:

  1. List your debts from the highest to the lowest interest rate
  2. Continue making minimum payments on all your debts while putting any extra money toward paying off the highest-interest debt faster
  3. Once the highest-interest debt is paid off, roll that payment amount into the next-highest-interest debt
  4. Repeat until everything is paid off

The best method for paying off debt will depend on your needs and goals. Either way, taking steps to lower your DTI ratio can not only help you qualify for new credit, but it can also put you on the path toward better financial health.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

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