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Understanding Debt-to-Income Ratio

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# Understanding Debt-to-Income Ratio
This playbook guides an individual through the process of calculating their debt-to-income ratio (DTI), a key financial metric used by lenders to assess creditworthiness. It explains the importance of DTI and how it affects personal financial health.

### Step 1: Gather Data
Collect all financial statements including monthly debt payments and your total monthly income.

### Step 2: List Debts
Write down all monthly obligations including loans, credit card payments, and any other debts.

### Step 3: Sum Debts
Add up all the monthly debt expenses to find the total monthly debt payment.

### Step 4: Verify Income
Calculate your total monthly income before taxes. Include all sources of regular income.

### Step 5: Compute DTI
Divide the total monthly debt by total monthly income and multiply by 100 to get the DTI percentage.

### Step 6: Evaluate DTI
Assess your DTI percentage. Generally, a DTI of 35% or lower is considered good, while anything above 43% may hinder your ability to obtain new credit.

### Step 7: Plan Reduction
If your DTI is high, create a plan to reduce your debt which may involve budget adjustments, debt consolidation, or seeking professional financial advice.

## General Notes

### Accuracy Matters
Ensure the accuracy of both your income and debt figures for a precise DTI calculation.

### Regular Review
Regularly computing your DTI can help monitor your financial health over time, allowing for timely adjustments.