Debt-to-income Ratio

Ask The Expert: Can You Explain “Debt-To-Income Ratio” in Plain English?

Question: I’ll graduate in a few weeks with a Communications degree, so I’m not stupid. But when I try to figure out how to live in the Real World on a budget, most websites are poorly written. I just can’t figure them out.

Here’s an example. I’m trying to learn about “debt-to-income ratio,” and Wikipedia isn’t much help in a practical sense. I went to the federal government’s new consumer protection website, and it’s only marginally better.

What I really want to know is, What should I DO about my DTI?

— William in Arizona

Howard Dvorkin CPA answers…

Howard Dvorkin on how to get out of debt fastJust last month, I answered another reader’s question and mentioned this topic. I declared, “This is the single most important personal statistic you can know.”

So it’s worth some more discussion.

Last month, I defined the term like this: “DTI is simply how much of your gross income is needed to pay your debts. Ideally, you want it to be as low as possible.”

How low? The federal government’s Consumer Financial Protection Bureau (one of the websites you cited) says anything above 43 percent could jeopardize your plans for buying a house, because you can’t get a qualified mortgage above that amount.

In my experience counseling debt-riddled Americans, anything over 30 percent means you probably aren’t saving enough money — whether it’s for retirement, your children’s college, or a new house.

You also asked what you “should do about your DTI.” First, you need to figure it out, and the easiest way to do that is with’s DTI calculator. Just plug in some numbers, and you’ll get the result.

Next, if your DTI is between 30 and 40, you need to monitor your spending in a tool that speaks, as you said above, “plain English.” It should also be free, so I suggest Power Wallet. It’s what we call a personal finance manager. Basically, it’s an online budgeting tool that shows you exactly what you’re spending in simple and elegant graphs and charts, which you can change at the click of a mouse.

If your DTI is 40 to 50, however, I suggest you make a free call for a plain English conversation with a certified credit counselor. They’ll give you a free debt analysis, and they’ll tell you if you qualify for any debt-relief programs. The number is 800-810-0989. Good luck, William. If you want, tell me what your DTI ratio is. I’m curious!


Have a debt question?

Email your question to and Howard Dvorkin will review it. Dvorkin is a  CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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