--- title: Debt to Income Ratio (DTI) | Formula, Example, Analysis, Calculator description: The debt to income is a ratio between an individual’s total debt and total income, which indicates the individual capability to pay the debts. --- [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo-white.4f6047d4.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) **[Home](https://www.carboncollectiveinvesting.com/) > [Sustainable Investing](https://www.carboncollectiveinvesting.com/sustainable-investing) >** Debt to Income Ratio (DTI) # Debt to Income Ratio (DTI) ![](https://www.carboncollectiveinvesting.com/hubfs/Brooke%20Tomasetti.png) Written by Brooke Tomasetti | Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts) Updated on October 1, 2024 Fact Checked Why Trust Carbon Collective? ### Table of Contents Debt to income (DTI) is a ratio measuring an individual’s ability to pay their debts. It compares the individual’s monthly debt payments to his or her gross monthly income. The ratio is used by creditors to estimate how probable borrowers are to pay monthly payments on time until the debt is paid. Debt to income ratio is one of the most important tools creditors need to decide whether to approve or not loans to individuals. The higher the ratio, the more unfavorable an individual is in the eyes of lenders. This measurement is only a part of a bigger process to determine the credit risk or the creditworthiness of an individual since DTI alone is not an all-powerful tool that doesn’t need a more thorough analysis. ## Debt to Income Ratio Formula ![Screenshot (34)](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/Screenshot%20(34).png?width=259&name=Screenshot%20(34).png) To find the monthly debt payments, add all of an individual’s debts. These include mortgage, credit cards, loans, insurances, etc. On the other hand, gross monthly income is the gross amount of monthly income an individual receives before taxes and other deductions. DTI ratio is expressed as a percentage.  People sometimes mistake the DTI ratio as the debt to limit ratio which compares an individual credit usage to their total available credit. This is entirely different from DTI that measures total debt vs. total income. As mentioned before, debt to income is simply a small part, albeit an important one, to a larger process creditors use to determine the capability of an individual to repay debts. This larger process is often referred to as credit analysis. Credit analysis is implemented to gauge the borrower candidates’ credit risk—the probability of an entity (in this case, an individual) failing to pay the required payments on loans due to the entity’s fault. The lower the ratio, the better it is for individuals who want a loan to be issued by lending institutions. There’s no universal maximum value of DTI acceptable by lenders, but a ratio lower than 36% is generally acceptable. Having said that, creditors may still give loans to people who have a higher ratio than 36% if they are deemed to have a good credit based on the credit analysis. On the contrary, creditors may not approve of an individual’s loan request, even if they have a relatively low DTI ratio. DTI is not the only variable to determine credit risk. So while the individual may have a good DTI, he or she may still be deemed risky because of bad credit history. ## Debt to Income Ratio Example Hannah, an office worker, wants to apply for a loan to one of the banks that provides lending products. The bank needs to implement analysis to indicate the creditworthiness of Hannah, debt to income is one of the instruments used.  Hannah currently needs to pay $1,250 a month as mortgage fees for her house and her car. Furthermore, she also has a monthly credit card payment of $200, $150 for insurance, and $400 of additional debt. Her monthly wage before tax is $6,500. What is her debt to income ratio? Let’s break it down to identify the meaning and value of the different variables in this problem. - Monthly Debt Payments = 1,250 + 200 + 150 + 400 = 2,000 - Gross Monthly Income = 6,500 Now let’s apply the values to our variables and calculate the debt to income ratio: ![Screenshot (35)](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/Screenshot%20(35).png?width=193&name=Screenshot%20(35).png) In this case, the debt to [income](https://www.carboncollectiveinvesting.com/sustainable-investing/annual-income/) would be 30.77%. From this result, we can see that Hannah’s DTI is still generally within the acceptable range. However, to accept her application, the bank won’t just use DTI to measure the credit risk of Hannah. They will need to further analyze her credit history. ## Debt to Income Ratio Analysis Debt to income is one of the most important tools for creditors when intending to issue a loan for an individual. DTI is often the determining factor of whether someone will be able to get a loan or not. However, DTI is not the only measurement creditors use to gauge the credit risk of an individual. Aside from DTI, creditors also need to examine individuals’ credit history. They may have low DTI but, at the same time, they may also tend to be negligent in paying their debts. That’s why creditors don’t rely exclusively on DTI but also other factors such as credit score, which is a numerical value that shows the borrower’s creditworthiness based on numerous factors. Individuals can try to lower their DTI ratio in various ways. The most straightforward method to do so would be increasing their gross monthly income. Since the gross monthly income is the denominator, it goes without saying that increasing it will also lower the ratio. Another way to do this is by settling any outstanding debts or at least paying off parts of them. For instance, you can pay off the principal of your car mortgage early. This will reduce the monthly fee you need to spend, assuming the [interest rate](https://www.carboncollectiveinvesting.com/sustainable-investing/interest-rate-parity/) is not fixed. ## Debt to Income Ratio Conclusion - The debt to income is a ratio between an individual’s total debt and total income, which indicates the individual capability to pay his or her debts. - The formula for debt to income requires two variables: monthly debt payments and gross monthly income. - The debt to income ratio is expressed as a percentage. - Different lending institutions have different guidelines at which to define in what range the potential borrowers’ DTI ratio is considered acceptable. However, 36% or less is generally ok. - Individuals can lower their debt to income ratio by increasing their monthly income or reducing their monthly debt payments. ## Debt to Income Ratio Calculator You can use the debt to income calculator below to quickly calculate the ratio between an individual’s total debt and total income by entering the required numbers.   Gross Monthly Income Monthly Debt Payments Debt to Income Ratio   ## FAQs ### 1. What is a debt to income ratio? A debt to income ratio is the percentage of a person's monthly debt payments to their monthly gross income. The ratio is used by creditors to determine how probable borrowers are to repay their debts. ### 2. How is the debt to income ratio calculated? The debt to income ratio is calculated by dividing a person's total monthly debt payments by their total monthly gross income. The formula is: DTI = Monthly Debt Payments / Gross Monthly Income ### 3. Why is the debt to income ratio important? Debt to income is one of the most important tools for creditors when intending to issue a loan for an individual. DTI is often the determining factor of whether someone will be able to get a loan or not. ### 4. What is a good debt to income ratio? Different lending institutions have different guidelines at which to define in what range the potential borrowers' DTI ratio is considered acceptable. However, 36% or less is generally a good DTI and anything above 43% is considered high-risk. ### 5. How is debt to income ratio improved? The debt to income ratio can be improved by increasing the person's monthly gross income or by reducing their monthly debt payments. Extra payments on principal will also help reduce the DTI ratio. ### Related Topics - [Sustainable 401(k) Plan](https://www.carboncollective.co/401k) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing/) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Retirement Glossary](https://www.carboncollective.co/sustainable-investing/retirement-planning-glossary) - [Best Retirement Plans](https://www.carboncollective.co/sustainable-investing/the-10-best-retirement-plans) - [Wealth Manager Vs Financial Advisor](https://www.carboncollective.co/sustainable-investing/wealth-manager-vs.-financial-advisor) ![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg) ### Attend Our Next Webinar Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios. [Watch Now](https://www.carboncollective.co/sustainable-investing-webinar-green-retirement-month) ![Get Our Newsletter](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-demo.6ed28722.svg) ### Get Our Newsletter Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account. Join Newsletter ![close-typeform](data:image/gif;base64,R0lGODlhEQARAIAAAODn7P///yH5BAEHAAEALAAAAAARABEAAAIqBIKpab3v3EMyVHWtWZluf0za0XFNKDJfCq5i5JpomdUxqKLQVmInqyoAADs=) ![Talk To A Human](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-chat.49d48c5b.svg) ### Talk To A Human Joining a new investment service can be intimidating. We’re here for you. Click below to email us a question or book a quick call. [Ask a Question](https://ask.carboncollective.co/f70pooobq) Topics ## Sustainable Investing Topics View our list of some topics below. See More - Portfolios - [Performance](https://www.carboncollectiveinvesting.com/returns) - About - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - Learn - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - Contact - [Contact us](mailto:hello@carboncollective.co) - [Legal](https://www.carboncollective.co/legal) - [Privacy Policy](https://www.carboncollectiveinvesting.com/hubfs/2022-11%20Carbon%20Collective%20Privacy%20Policy.pdf) - [Back to top](https://www.carboncollectiveinvesting.com/sustainable-investing/debt-to-income-ratio#top-of-page) DISCLAIMERS: Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective"), an SEC-registered investment adviser. A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/). The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered. © 2026 Carbon Collective Corporation. All rights reserved. × #### Fact Checked Carbon Collective partners with financial and climate experts to ensure the accuracy of our content. Our team of reviewers are established professionals with years of experience in areas of personal finance and climate. They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others. This team of experts helps Carbon Collective maintain the highest level of accuracy and professionalism possible. × #### Why Trust Carbon Collective Carbon Collective is the first online investment advisor 100% focused on solving climate change. We believe that sustainable investing is not just an important climate solution, but a smart way to invest. We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Much of our research comes from leading organizations in the climate space, such as Project Drawdown and the International Energy Agency (IEA). Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others. We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. } ```json { "@context" : "https://schema.org", "@type" : "Organization", "alternateName" : "Carbon Collective", "contactPoint" : { "@type" : "ContactPoint", "areaServed" : "US", "availableLanguage" : "en", "contactType" : "customer service", "telephone" : "(650) 868-2697" }, "logo" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png", "name" : "Carbon Collective Investing LLC", "sameAs" : [ "https://www.facebook.com/carboncollectiveinvesting/", "https://twitter.com/carbncollective", "https://www.instagram.com/carbon.collective/", "https://www.youtube.com/channel/UC769Y-F-L_B37kyQfdpvyXA", "https://www.linkedin.com/company/carbon-collective/", "https://www.crunchbase.com/organization/carbon-collective", "https://adviserinfo.sec.gov/firm/summary/310129", "https://www.wikidata.org/wiki/Q110243690" ], "url" : "https://www.carboncollective.co/" } ``` ```json { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [{ "@type": "Question", "name": "What is a debt to income ratio?", "acceptedAnswer": { "@type": "Answer", "text": "A debt to income ratio is the percentage of a person's monthly debt payments to their monthly gross income. The ratio is used by creditors to determine how probable borrowers are to repay their debts." } },{ "@type": "Question", "name": "How is the debt to income ratio calculated?", "acceptedAnswer": { "@type": "Answer", "text": "The debt to income ratio is calculated by dividing a person's total monthly debt payments by their total monthly gross income. The formula is: DTI = Monthly Debt Payments / Gross Monthly Income" } },{ "@type": "Question", "name": "Why is the debt to income ratio important?", "acceptedAnswer": { "@type": "Answer", "text": "Debt to income is one of the most important tools for creditors when intending to issue a loan for an individual. DTI is often the determining factor of whether someone will be able to get a loan or not." } },{ "@type": "Question", "name": "What is a good debt to income ratio?", "acceptedAnswer": { "@type": "Answer", "text": "Different lending institutions have different guidelines at which to define in what range the potential borrowers' DTI ratio is considered acceptable. However, 36% or less is generally a good DTI and anything above 43% is considered high-risk." } },{ "@type": "Question", "name": "How is debt to income ratio improved?", "acceptedAnswer": { "@type": "Answer", "text": "The debt to income ratio can be improved by increasing the person's monthly gross income or by reducing their monthly debt payments. Extra payments on principal will also help reduce the DTI ratio." } }] } ``` ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/Brooke%20Tomasetti.png", "url" : "https://www.carboncollectiveinvesting.com/sustainable-investing/author/brooke-tomasetti" }, "dateModified" : "2024-10-01", "datePublished" : "2021-03-24", "description" : "The debt to income is a ratio between an individual’s total debt and total income, which indicates the individual capability to pay the debts.", "headline" : "Debt to Income Ratio (DTI) | Formula, Example, Analysis, Calculator", "image" : "", "mainEntityOfPage" : { "@id" : "https://www.carboncollectiveinvesting.com/sustainable-investing/debt-to-income-ratio", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png" }, "name" : "Carbon Collective" } } ```