Definition: Debt ratio is that number that is made up by adding up the total amount of your monthly debt payments and then comparing that figure to your gross monthly income as a percentage. If you make required payments every month that total $500, and your gross monthly income is $1,500, your debt ratio is 33%.
Not to be confused with front-end debt ratios or back-end debt ratios, both of which involve your mortgage payment debt.
Examples:
Higher debt ratios mean financial trouble. If your debt ratio is 80% on a monthly salary of $2,000, it means you are paying out $1,600, and that is financially unhealthy.
