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:: What is debt-to-income ratio?

A widely used measure of financial stability, your debt-to-income ratio is the percentage of monthly income that can be applied toward monthly long-term debt obligations. It is calculated by dividing monthly minimum debt payments (excluding mortgage or rent payments) by monthly gross income. For example, someone with a gross monthly income of $2,000 who is making minimum payments of $400 on loans and credit cards has a debt-to-income ratio of 20 percent ($400 / $2000 = .20).

Debt-to Income Ratio = Total Debt Payments / Monthly Gross Income

Other authorities may offer slightly different definitions of debt-to-income ratio. While variations will result in different percentage outcomes, the overall concept is the same: a debt-to-income ratio compares debt load to income.

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