Debt-to-Income Ratio

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Usually expressed as a percentage, this ratio compares an individual's gross monthly income with the amount that individual must spend each month in repaying debts. For example, if a person's gross income is $2,000 and she spends $400 each month repaying debts, the debt-to-income ratio is 20% ($400 is 20% of $2,000). The higher the ratio, the more the person is paying to handle debt repayments relative to her income, and so a high ratio could be an indicator of possible financial difficulty.