How would you calculate your debt-to-income (DTI) ratio?

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Multiple Choice

How would you calculate your debt-to-income (DTI) ratio?

Explanation:
The main idea is to see how large a share of your gross income is committed to debt each month. To get this ratio, divide your total monthly debt payments by your gross monthly income, and express the result as a percentage. For example, if you pay $1,500 in debt each month and your gross monthly income is $6,000, the DTI is 1,500 ÷ 6,000 = 0.25, or 25%. This uses gross income because it reflects earnings before taxes and other withholdings, and it uses total monthly debt payments as the portion in debt obligations, not assets or net income. The other formulations mix up the numerator and denominator or introduce assets or net income, which aren’t what DTI measures.

The main idea is to see how large a share of your gross income is committed to debt each month. To get this ratio, divide your total monthly debt payments by your gross monthly income, and express the result as a percentage. For example, if you pay $1,500 in debt each month and your gross monthly income is $6,000, the DTI is 1,500 ÷ 6,000 = 0.25, or 25%. This uses gross income because it reflects earnings before taxes and other withholdings, and it uses total monthly debt payments as the portion in debt obligations, not assets or net income. The other formulations mix up the numerator and denominator or introduce assets or net income, which aren’t what DTI measures.

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