What is a debt-to-income ratio?
Your debt-to-income (DTI) ratio compares your monthly income to your monthly debt payments. The media likes to quote the average DTI for Canadians, but it is far more useful to know your own.
How the calculator works
Start with your monthly income. We use net (after-tax) income rather than gross, because that is the money you actually pay your debts with. Add other income if you have it, such as a spouse's income, alimony or child support, a pension or benefits, government assistance, or a side hustle. Then enter your monthly debt payments (rent or mortgage, car loan, car insurance, credit cards, student loans, and so on), adding as many as you need.
How to read your ratio
A lower DTI means you can comfortably cover your bills and still save. A higher DTI means more of your income is going to debt, leaving less for everything else. A common way to rate it:
- 36% or less: good
- 37% to 42%: manageable
- 43% to 49%: cause for concern
- 50% or more: dangerous
A high ratio is not always an emergency. It depends on your age and stage. A recent first-time homebuyer with peak earning years ahead can often manage a higher ratio, as long as rates stay steady and their pay keeps growing. But if you are nearing retirement or on a fixed income, a high DTI deserves closer attention.