Calculating Your Debt-To-Income Ratio

Your debt-to-income ratio is a number that can help you better gauge the level of your debt. Knowing that you spend $1,500 a month on debt payments isn't enough information to tell whether you're overloaded with debt. If you spent that amount on debt while bringing in $3,000 a month in income, I'd say you absolutely have too much debt. On the other hand, with an income of $5,000 a month, you're a little safer spending $2,000 a month on debt.

Since you can't figure out your debt overload with your debt numbers alone, calculating your debt-to-income ratio puts your financial situation in numbers that are easier to understand and evaluate.