November 26, 2025
Your debt-to-income ratio is a good indicator of how you’re doing financially. Here’s how to calculate a debt-to-income ratio and how it can help you get approved for loans.
Do you know your debt-to-income ratio (DTI ratio)? It's one of the most important numbers in your financial life. Getting approved for new credit cards or loans often relies on your DTI ratio. Lenders, such as banks and mortgage providers, use this number to determine whether you can handle additional debt.
It doesn’t just influence borrowing, though. It can impact your overall financial decisions, from budgeting to planning for major life milestones like buying a home. Understanding how it’s calculated and what it means helps you make informed choices about your money.
Your DTI ratio measures the percentage of your monthly income that goes toward paying debts, including credit cards, loans, and other financial obligations.
Calculating your DTI ratio is simple. Simply divide how much you spend on debt each month by your monthly income and multiply by 100.
An example would be if you earned $5,000 per month and spent $1,000 of that on paying down debt.
1,000 ÷ 5,000 = 0.20
0.20 x 100 = 20
In this case your monthly DTI ratio is 20%.
We have a handy tool that can help you calculate yours by breaking down your debts. You can find it below.
Use our tool to help you find out your own debt-to-income ratio
Discover your debt-to-income ratioGenerally, a DTI ratio of 30% or less is considered healthy. At this level, your income comfortably supports your debt payments, leaving enough room for savings, emergencies, and everyday expenses. Lenders often view this range as a sign of financial responsibility.
If your DTI ratio climbs above 40%, it’s a signal to take notice. This level suggests that debt payments are consuming a significant portion of your income, which can lead to financial strain. You might find it harder to manage unexpected costs and could have applications for credit denied.
A DTI ratio close to or exceeding 50% is a clear sign that it’s time to act. At this point, debt takes up half or more of your income, leaving little flexibility for other financial goals. This situation can quickly become unsustainable and increase your risk of falling behind on payments.
Monitoring your DTI ratio helps you stay ahead of potential problems and adjust your spending as needed.
Your (DTI) ratio plays a vital role in your financial health. A high DTI ratio can signal financial distress, affect your credit score, and limit your access to credit. Understanding its impact can help you make informed financial decisions and avoid potential pitfalls.
A high DTI ratio can throw off your budgeting by leaving little room for essential expenses or unexpected costs. It can also derail your savings goals, as more of your income is allocated toward debt payments instead of investing in your future. Keeping your DTI low allows you to balance your finances more effectively and create a cushion for unforeseen financial challenges.
A high DTI ratio can negatively impact your credit score, especially if your credit utilization is high. A significant portion (30%) of your credit score is determined by how much of your available credit you’re using, according to Equifax, one of the large credit bureaus in Canada.
A low credit score may lead to higher interest rates or even denial of future credit applications.
Lenders look at your DTI ratio to see if you manage debt responsibly. A high DTI makes it harder for lenders to trust you, as a significant portion of your income is already committed to debt payments. It may result in loan rejections or stricter terms, such as higher interest rates.
Maintaining a low DTI ratio is essential to ensure you can access credit when needed and preserve your overall financial stability.
A high DTI ratio can feel overwhelming, but there are ways to improve it. Reducing your DTI ratio requires focus, discipline, and a plan to manage debt effectively.
Start by creating a detailed budget that outlines your income, expenses, and debt obligations. This gives you a clear picture of your financial situation. Identify areas where you can cut back some spending, such as dining out or entertainment, and redirect those funds toward debt repayment.
A well-structured budget helps you stay on track and ensures your money is working for you.
Focus on paying off high-interest debts first.
This strategy reduces the amount of interest you pay in the long run and speeds up your path to becoming debt-free. This will save you money over time while reducing the amount you owe.
You can then take the money you save in interest and put it towards your debt repayment.
Paying off credit cards is an excellent place to start. They have high interest rates, which will cost you more in the long run.
If you have debt, you should avoid adding more debt.
New loans or credit card balances can worsen your ratio and make improving your DTI ratio more difficult. Focus instead on reducing your existing debt load to improve your financial stability.
Look for ways to boost your income if you can. We know this won't be something everyone has the option of doing, but it makes a real difference if you can.
Adding even just a small increase in income that goes entirely to your debt repayment will help you free up additional funds. If you're able to take on a part-time job, gig work, or maybe just walk some dogs on the weekend for some extra cash, it's something to consider.
Another way to boost your income temporarily is to sell some of your unused items. It can help you catch up on debt in the short term.
If your DTI ratio is 40% and growing or already past 50%, then you should consider speaking to one of BDO's Licensed Insolvency Trustees. Trustees are licensed and regulated by the government of Canada. They take a no-judgment approach to helping people manage their debt. They assess your financial situation, explain your options, and guide you toward a solution.
A consumer proposal is one option a Trustee may recommend. This legally binding agreement reduces the amount you owe by up to 80%. The Licensed Insolvency Trustee will assess your full financial situation and negotiate with your creditors on your behalf to lower your monthly payments.
A consumer proposal puts a stop to collection calls, legal actions, and wage garnishments. These must all cease after you file a proposal.
A consumer proposal also lets you keep important assets like your home and car.
The first consultation with a Licensed Insolvency Trustee at BDO is free, and you're under no obligation to sign anything, so you can explore your choices without any added pressure.
November 26, 2025
Your debt-to-income ratio is a good indicator of how you’re doing financially. Here’s how to calculate a debt-to-income ratio and how it can help you get approved for loans.
