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What is debt-to-income ratio? Debt-to-Income ratio is a widely used measure of financial stability. Your debt-to-income ratio is the percentage between monthly income and monthly long-term debt obligations.
It is calculated by dividing monthly debt minimum payments (except mortgage or rent payments) by monthly income. For example, consumer with a monthly income of $4,000 who makes minimum payments of $800 on lease, loan and credit cards has a debt-to-income ratio of 20 percent ($800 / $4000 = 0.20).
Debt-to-Income Ratio = Debt Payments / Monthly Income.
If you keep your debt-to-income below 15%, you will be receiveing the best interest rates and terms on credit accounts.
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