(5) Understand Your Debt-to-Income Ratio

Do you know what your debt-to-income (DTI) ratio is? Your debt-to-income ratio is the amount of your total debt you are carrying in monthly payments divided by your gross income.
The equation looks like this:
Total Debt/Gross Income X 100 = Debt-to-Income Ratio
If you make $5,000 a month and have $1,000 in debt payments, your DTI is:
$1000/$5000 X 100 = 20%
Financial pros like a DTI of under 36% overall. If it is over 40%, you are heading for disaster and it is a major, major red flag for you.