The formula, in one paragraph
Debt-to-income ratio is the total monthly debt divided by gross monthly income, times 100. Add every monthly debt payment — housing, car, student loan, credit card minimums and anything else — then divide by the gross pay before tax, and multiply by 100. The bands are 36% or under good, 37 to 43% acceptable, 44 to 49% high, and 50% or more very high. Lenders commonly cap back-end DTI at 43% for a qualified mortgage.
Step 1: Work out the number
Add the debts and divide by the income. At the example numbers, the income is $6,000 a month, the housing is $1,800, the car is $350, the student loan is $250, the credit card minimums are $150, and the other debts are $100, so the total debt is $2,650 and the ratio is $2,650 divided by $6,000, which is 44.17% — high. The front-end ratio is the housing alone: $1,800 divided by $6,000, which is 30.00%. Housing is 67.92% of the debt, so the housing payment is the lever that moves the ratio most.
Step 2: Pick the target
Pick the line you need to cross. The most debt allowed at 36% on a $6,000 income is 36% times $6,000, which is $2,160, so the cut needed is $2,650 minus $2,160, which is $490 a month. The most allowed at 43% is 43% times $6,000, which is $2,580, so the cut needed is only $70 a month. There is $350 of headroom before 50% ($3,000 minus $2,650).
Step 3: Pay off the smallest debts first
Clear the small debts that free a whole payment. Paying off the car takes the debt from $2,650 to $2,300, and the ratio falls to 38.33% — acceptable. Paying off the car and the cards together takes the debt to $2,150, and the ratio falls to 35.83% — good, because the $500 of cuts is more than the $490 needed for 36%. Paying off the student loan alone takes the ratio to 40.00% — acceptable, but not good.
Step 4: Cut the housing payment
Housing is 67.92% of the debt, so it moves the ratio more than any other payment. A $1,500 home takes the debt to $2,350 and the ratio to 39.17% — acceptable. A $1,200 home takes the debt to $2,050 and the ratio to 34.17% — good. The other way, a $2,000 home takes the ratio to 47.50% — still high — and a $2,500 home takes it to 55.83% — very high.
Step 5: Raise the income
A bigger income cuts the ratio without a payment, because the same debt is divided by a larger number. A $6,500 income takes the ratio to 40.77% — acceptable. A $7,000 income takes it to 37.86% — acceptable. To reach 36% on this debt you need $2,650 divided by 0.36, which is $7,361.11 a month. For 43% you need $6,162.79 a month, and for 50% you need $5,300.00 a month. A raise, a second job or a side income all count, because lenders use gross income.
Do not take on new debt
Every new monthly payment lifts the ratio. One more $350 debt takes the defaults to exactly $3,000 of debt, which is 50.00% — very high. A new car loan, a new card or a personal loan all count the same way. Hold off on new debt until the ratio is where the lender wants it.
What NOT to do
Do not close old credit cards to fix the ratio. Closing a card does not cut a monthly debt payment, and the ratio counts payments, not limits, so it buys nothing. Do not stretch a loan term just to shrink the payment either: a smaller payment helps the ratio, but a longer term costs more interest. The honest version of a lower ratio is less debt or more income, and the numbers above show which one is cheaper for you.
That box is the whole formula.
Worked example: the default debts
Step 2: most debt at 36% = $2,160 → cut $490 a month; most at 43% = $2,580 → cut $70 a month; headroom to 50% = $350.
Step 3: pay off car → $2,300 ÷ $6,000 = 38.33%; pay off car + cards → $2,150 ÷ $6,000 = 35.83% (good).
Step 4: housing $1,200 → $2,050 ÷ $6,000 = 34.17% (good); housing $2,000 → 47.50% (high).
Step 5: income $7,361.12 → 36.00% (good); income $7,000 → 37.86% (acceptable).
Answer: DTI 44.17% (high); cut $490 a month to reach 36%, or earn $7,361.11 a month.