What is generally considered a healthy debt-to-income ratio?

A debt-to-income ratio (DTI) is a financial metric that compares an individual's total monthly debt payments to their gross monthly income. It is an important criterion used by lenders to determine borrowing capacity and assess an applicant's ability to manage monthly payments and repay debts.

A DTI ratio generally below 36% is widely recognized as indicative of a healthy financial status. This threshold suggests that a manageable proportion of an individual's income is allocated to debt repayment, allowing for sufficient financial flexibility and minimizing the risk of default. Maintaining a lower DTI improves the chances of being approved for loans or credit because lenders typically view applicants with a lower percentage of income going toward debt as less risky.

Conversely, a DTI ratio above 50% indicates that more than half of an individual’s income is used for debt payments, which can signal financial strain. Moreover, rates around 75% are excessively high and likely unmanageable, leading to an unsustainable financial situation. A ratio below 20% is often considered excellent but not commonly cited as an industry standard for healthy ratios that lenders look for in broader contexts.