Ah, so this is what your maths teachers meant when they said you’d use it when you were older.
When it comes to managing money, knowing your numbers matters. One of the most important is your debt-to-income ratio. It’s an easy way to understand how much of your income is going towards debt each month. And lenders often use it to assess how well you’re managing.
Here’s how it works, why it matters and how to keep it in check.
What is a debt-to-income ratio?
Your debt-to-income ratio (or DTI) does what it says on the tin. It’s a figure that shows how much of your monthly income goes on paying debts. It’s a good indicator of your financial health, and it’s one of the things lenders look at when deciding if you can take on more credit.
A high DTI might make it harder to get approved for loans or credit cards. A lower one suggests you’re in a stronger position to manage repayments.
How to calculate debt-to-income ratio
It’s actually much easier than the secondary school flashbacks suggest. Here’s the formula:
Monthly debt payments ÷ gross monthly income × 100 = DTI percentage
Step-by-step example:
Let’s say you earn £2500 each month before tax, and you pay:
- £250 on your credit card
- £300 on your car finance
- £400 on your personal loan
That’s £950 total debt payments.
Now divide £950 by £2500:
£950 ÷ £2500 = 0.38
Multiply by 100 to get your percentage:
0.38 × 100 = 38% DTI
So, what’s a good debt-to-income ratio?
- Below 36% – generally seen as healthy
- 36%–49% – could still be manageable, but some lenders may be cautious
- 50% or more – might be a sign you’re taking on too much debt
How to fix your debt-to-income ratio
If your DTI is on the high side, the goal is to reduce your monthly debt payments or increase your income. Here are some practical ways to start:
Review your budget
This is the one you have most control over. Look at where your money’s going and spot areas to cut back. Small savings can add up over time. Any subscriptions kicking about that you could absolutely live without?
Avoid taking on new debt
Hold off on borrowing more until your DTI is at a more manageable level.
Boost your income
This might not be easy short term, but even an extra shift here and there can help bring your ratio down over time.
Consider refinancing
If you qualify, switching to a loan with better terms can reduce your monthly payments.
How Zilch can help
Pay over 6 weeks: split your purchase into four payments with zero interest – fees may apply. That means no sudden spikes in monthly debt, and no hidden costs.
Pay now, earn up to 5% back in Zilch Rewards: Each time you use Zilch to Pay now, you earn up to 5% back in Rewards. Those necessary spends become investments into your future – you can put those Rewards towards your next purchase.
Smarter spending: by using Zilch for essential short-term costs and paying them off in full, you avoid adding to your DTI with high-interest credit card balances.
Used responsibly, Zilch helps you stay in control, all while keeping your debt-to-income ratio in check.