Question

Using the following incomes and expenses information, calculate the total debt-to-income ratio: Employment wages: $115,000 Interest earned: $950 Dividends earned: $1,200 Mortgage payments: $38,600 Auto loan payments: $3,300 Student loan payments: $9,000 Taxes: $31,050 Utilities: $3,600 Personal savings: $12,000 Gas: $3,500 Groceries: $7,200 Entertainment: $6,000 Charitable donations: $500 Clothing: $1,500 Travel: $1,000

Answer 1

To calculate the total debt-to-income ratio, we need to know the total income and the total debt.

Income:

Employment wages: $115,000
Interest earned: $950
Dividends earned: $1,200
Total Income = 115,000 + 950 + 1,200 = $117,150

Debt:

Mortgage payments: $38,600
Auto loan payments: $3,300
Student loan payments: $9,000
Total Debt = 38,600 + 3,300 + 9,000 = $51,900
Then we divide the total debt by total income and multiply the result by 100 to express the ratio as a percentage.

Debt-to-Income Ratio = (Total Debt / Total Income) x 100

Debt-to-Income Ratio = (51,900 / 117,150) x 100 = 44.63 %

So, the total debt-to-income ratio is 44.63%. This is a ratio, traditionally, lenders will consider anything above 36% to be too high, and that a borrower may be considered risky. Although, each lender has their own criteria and might also evaluate on case by case.