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Financial Learning Center

Looking at Your Spending and Debt

Calculating Your Total Debt Ratio

Your total debt ratio is based on monthly gross income rather than take-home pay. It is your gross monthly income divided by your total monthly debt payments, expressed as a percentage. The example below shows how to calculate it.

a) Total consumer debt payments
(see section above)


b) Total mortgage payments


c) a) + b)


d) Monthly gross income


Total debt ratio = c) divided by d)


Mortgage lenders may not lend money to someone with a total ratio more than 36%, since the ability to repay it is questionable. At more than 36%, you may also want to be talking to a credit counselor about your debts.

Some mortgage lenders also follow the rule of thumb that your total monthly mortgage payment, including homeowner's insurance and property taxes should be no more than 28% of your gross monthly household income.

You should also calculate your net worth (see the section Calculate Your Net Worth). Your net worth tells you, in a nutshell, how much you have accumulated over the years. For people with debt problems, that figure is often surprisingly low. It may even be negative. Negative net worth that keeps getting larger may mean that bankruptcy is a possibility in the future.

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