How to Calculate Debt-to-Income Ratio

Debt-to-income (DTI) might sound like a complex term, but it's simply the ratio of your monthly debts to your gross income. Usually, it's shown as a percentage – the higher the percentage, the more of your income goes toward paying down debt.

You won't typically need to provide this number for a credit card application, but it will impact how much you can qualify for if you're seeking a personal loan or mortgage. Lenders want to know how much you can reasonably afford to pay back each month if they loan you money.

This article discusses everything that goes into your debt-to-income ratio, why it matters, and how to calculate it.

What is debt-to-income ratio – and why does it matter?

A debt-to-income ratio (DTI) represents how much of your gross income (i.e., before taxes) goes towards paying your monthly debts. In some government pages, DTI is referred to as Total Debt Service, or TDS.

Lenders use this number to see if you can take on more debt. If it's already high, you likely won't be able to secure a loan or mortgage. The generally accepted cutoff is 44%. A DTI higher than 50% can indicate that you're living beyond your means.

Remember: Lenders look at more than just your DTI when you apply for a loan. A high debt-to-income ratio won't necessarily block you from getting a loan, but it can make it more difficult to get approved.

How to calculate debt-to-income ratio

Debt-to-income ratio might sound complex, but it's a very simple snapshot of your finances, and there isn't much math involved. You'll just need some information about your income and expenses. Here's how to calculate your DTI:

• Calculate your monthly debts: Add up all of your fixed bills and financial obligations like rent or mortgage(s), monthly car payment, monthly student loan payment, medical and dental bill payments, alimony and child support payments, and monthly credit card and line of credit payments
• Determine your gross monthly income: Add up all of your income from jobs, alimony or child support, pension or retirement benefits, social assistance benefits, and government assistance. Use the pre-tax amount (not the net amount).
• Divide your monthly debt by your monthly income.
• Multiply the result by 100 to get your DTI percentage.

It should only take you a few minutes to find the information you need for this calculation. If you have a monthly budget, you probably already have a good idea of your income and expenses.

Debt-to-income ratio (DTI) = monthly debt payments / gross monthly income x 100

Debt-to-income ratio example

Seeing an example can help make sense of DTI. Let's start with the easiest part. You know your only source of income is your paycheque, which earns you $5,000 per month before any deductions.

Next, you add up all your debts. You might pay rent, a car payment, and your credit card's minimum monthly payment. All those add up to $1,500.

DTI = monthly debt payments / gross monthly income x 100

DTI = 1,500 / 5,000 x 100

DTI = 0.3 x 100

DTI = 30%

What's a good debt-to-income ratio?

When it comes to a DTI ratio, lower is better.

If you're applying for a mortgage, you'll want to keep it at or under 34%. This number will increase once you start paying the mortgage – if it's already high, at, say, 43%, you may not be approved.

The magic number will vary by lender, and there's no real way to know until you apply for a mortgage or loan.

In our example above, we're in pretty good shape, with a 30% ratio.

As a more personal example, a Team Genius member told us that the first time he applied for (and was approved for) a mortgage, the mortgage advisor at the bank said he wanted the mortgage ratio to be around 43% – which is surprisingly high.

How to reduce your debt-to-income ratio?

There are 2 ways you can reduce your debt-to-income ratio:

• Increase your income
• Reduce your debt payments

Let's take our example above. If we find $500 worth of debt savings every month (say the car loan is gone or we took advantage of a balance transfer offer), the new number looks like this:

DTI = 1,000 / 5,000 x 100

DTI = 20%

Going the other way, say we got a raise at work, and the new monthly income is $5,500. Here's the new debt ratio (with the original $1,500 debt).

DTI = 1,500 / 5,500 x 100

DTI = 27%

Other factors that impact loan approval

Your debt-to-income ratio isn't the sole factor in whether you're approved for a loan or mortgage. The biggest one is your credit score and history.

From your credit report, a lender can evaluate whether or not you've been able to pay all your bills on time or have had bankruptcies or consumer proposals in the past. This is also where they'll get the information on your debts.

There are a few other things that can affect your approval:

• Your income, which is tied to your debt-to-income ratio
• Size of your down payment for mortgages and car loans
• Your financial assets, like a home or car

FAQ

What is a good debt-to-income ratio?

According to TransUnion, one of the major credit bureaus, a good debt-to-income ratio is 35% or less if you're hoping to secure a mortgage or personal loan. DTIs over 35% can mean money is a little tight, so you're a bigger lending risk.

How can I determine my debt-to-income ratio?

To determine this, first find out how much monthly debt you have and divide it by your monthly gross income (before taxes are taken out). Then, multiply the result by 100 to get your debt-to-income ratio expressed as a percentage.

Can I improve my debt-to-income ratio?

Yes, there are essentially 2 ways to improve your DTI. You can increase your income – maybe you pick up a side hustle or get a raise. You can also focus on paying down your debt, which also reduces your DTI ratio.

How much debt is normal at 35?

According to Statistics Canada, Canadians aged 35 – 44 carry an average of $13,752 in debt. Keep in mind that this isn't just mortgage debt – there are plenty of other types of debt, such as credit card debt and personal loans.

How can I pay down credit card debt?

A few tips on paying down credit card debt include looking for a good balance transfer promotion, negotiating a lower interest rate, and making more than the minimum payments. Note that while the 15/3 rule is popular, it's not really helpful for paying down credit card debt.

What is Canada's debt-to-income ratio?

Canadians are carrying more debt than ever. As of Q4 2025, Canada's seasonally adjusted debt-to-income ratio hit 177% — up for the fifth quarter in a row — meaning households owe $1.77 for every dollar of disposable income earned.