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Question of the Day – What’s Your Total Debt to Income Ratio
By JLP | July 2, 2009
I was looking over our financials this morning and calculated that our total household debt (including our mortgage) to income ratio is .81. By this time next year—assuming we make no purchases on credit—that number should be around .75.
I’m pretty happy with that number—especially when I hear that the average household’s ratio is around 1.3 (or 130%).
Remember, to get the ratio, you simply divide your total debt by your annual income (use gross income for simplicity’s sake).
So…
What’s your total debt to income ratio?
I’m thinking it would be relatively low for AFM readers since you guys seem to be on top of your finances. But, I’d still be curious to know (if you’re willing to share the information)
Topics: Budgeting | 27 Comments »
July 2nd, 2009 at 8:57 pm
Mine is 0. I have no debt right now. Hopefully that will change soon and I'll have a mortgage. Then I expect it to be around 2.5.
July 2nd, 2009 at 9:01 pm
Ours is zero. We have no debt. We don't anticipate needing to borrow money in the future, we own our home and vehicles.
July 2nd, 2009 at 9:06 pm
We just bought a house in May, and have no other debt. My husband also just got a substantial raise and so our ratio is now 2.07 (before the raise it was 2.49).
July 2nd, 2009 at 10:06 pm
Using NET income (because I have that figure handy; I don't have gross income handy; I'm posting from work), ours is 1.23.
If we used the gross income figure it would probably be somewhere around 0.9.
July 2nd, 2009 at 10:54 pm
Mine is really high, it's almost embarrassing, but it is what it is. My spouse and I have a fairly new mortgage, and some student loans. My spouse also had expected income when we purchased our house, but then decided to start a business instead of just regular employment after going to school.
So our ratio ends up being 2.4, when the original plan if the spouse had replaced the pre-schooling income would have been 1.66.
July 3rd, 2009 at 1:13 am
.60 and falling monthly. Looking for 0.00
July 2nd, 2009 at 8:44 pm
I’m getting close to zero. I’m at .12!
It’s funny, I’ve check out many companies debt to equity ratios, but never thought of applying it to my finances…
At the beginning of next year, I should be debt free!
I can see the proverbial light at the end of my debt tunnel…
July 3rd, 2009 at 2:51 am
For whatever it's worth, ours is about 1, maybe a bit less.
As with all ratios, one number in isolation doesn't tell you a whole lot. One person could have a $70K income with a $70K mortgage and no other liabilities or assets (other than, say, a modest $100K house). Another person could have a $200K income with a $200K mortgage on their second residence, no other liabilities, a million dollar first residence fully paid off, 5 rental properties fully paid off, and a million dollar stock portfolio. A third person could be a student with a $10K part-time job and $10K of credit card debt. All would have the same debt/income ratio.
July 3rd, 2009 at 4:11 am
Mine is 0.32. That's one remaining student loan, and a graduate student salary.
But man, looking at the numbers above, buying a house around here would probably put people (even with a good 20% down payment, and a solid salary) at a 5 – 10 debt to income ratio. I hear real estate in some cities is crazy!
July 3rd, 2009 at 10:29 am
As S.B. stated it does not tell a whole lot.
Mine is around 1.9. However, that is because I have a $300,000 mortgage. BUT I have about $250,000 and cash that I could use to pay down that mortgage if I wanted to. If I did my ratio would be about .3.
July 3rd, 2009 at 11:42 am
Our is 0.18. But count on that to double when my wife quits her job to stay home with our first child in a few months.
July 3rd, 2009 at 1:03 pm
Ours is 1.47 due to a mortgage, student loan & only one income (husband is full time student right now). Of course I would love to have a much lower ratio, but I am proud that we have no credit card or auto debt and also have about 7 months of expenses saved in an emergency fund.
July 3rd, 2009 at 2:33 pm
I was surpirsed mine is now only 2.44, and that is with 3 mortgages, 1 primary, 1 on my prior house that is for sale, (long story) and 1 rental property.
July 3rd, 2009 at 5:15 pm
0 – I have no debt. This is not to say I wouldn't borrow if I could make money off it i.e. borrow at lower interest than what I can earn.
July 3rd, 2009 at 7:48 pm
1.03, largely due to two very large and very new student loan accounts. Joy!
July 3rd, 2009 at 9:06 pm
Mine is zero, and I intend to keep it that way! (All right, if you count the Amex charges, which will be paid at the end of the billing cycle, it's 0.0044. Truth in advertising here.)
July 3rd, 2009 at 10:10 pm
0
July 4th, 2009 at 2:29 am
I would have thought the ratio would be higher if mortgages are involved.
Right now I'm at .15, but when I buy a small place, that will be around 4!
Craziness.
July 4th, 2009 at 2:34 am
Currently, it's 0. House paid for, cars paid for, no consumer debt at all. However, we're five years away from 1st Child going to college, and I will be 100% honest and say taht our original approach to saving for this (529 plan) has not done so well over the past couple of years (which should be no surprise). So I'm hoping we do not have to see this number creep up in a few years.
July 4th, 2009 at 11:26 pm
Mine is 2.16, which is kinda funny as we have no other debt but our home and our net worth is over $200k. I have a fully funded emergency fund and save quite a bit of money each month. Our mortgage is also less than the 30% of income that banks recommend.
July 5th, 2009 at 9:32 pm
I agree with S. B. this ratio is not a good indicator of financial health.
July 5th, 2009 at 10:37 pm
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July 5th, 2009 at 11:18 pm
I guess I'm around 2.2, but I also wonder at the usefulness of the number. Generally speaking my finances are pretty much in order. I'm about 5 years into a 30 year mortgage (my only debt), although I am on track to have it paid off about 20 years from now (i.e. 5 years early).
My general goal is to retire at age 59, and by my calculation I am essentially on track to do it. So what does 2.2 mean? Anything useful? Sure, I'd like the number to be lower, and I suppose it could be a lot lower if I stopped my retirement saving and pumped money at my mortgage.
I don't know what to suggest as a replacement for debt-to-income. My net worth would have to include the value of my house and land. Counting my assets leaves me in the black though, no net debt.
July 6th, 2009 at 10:14 am
Mine is 0.
However, I think you need to look at NET debt to income to make this more meaningful. So you would look at the debt you have less any available cash and divide that by income. In this case, probably makes more sense to look at net income as well
The other thing to note is that this ratio is going to differ depending on what stage of your life… the ratio is going to be pretty high if you have just come out of college (student loans) or have bought a house…
July 6th, 2009 at 12:44 pm
Canadian Capitalist, why are you allowing people to try and scam your readers? For shame!
July 8th, 2009 at 3:35 pm
0.18
July 12th, 2009 at 8:35 pm
Isn’t debt/income ratio the percentage of your income it takes to service debts monthly? In that case my ratio is 11% for my mortgage. Under 20 is usually considered good.