Debt-to-income ratio-DTI

Debt-to-income ratio is the percentage of a consumer’s monthly gross income that goes to paying debts. It is a useful measure for companies to gauge how much a consumer can borrow.

The DTI ratio increased in the early to mid 2000s as consumers borrowed and went on a spending binge. However, the DTI ratio has its pitfalls. Low interest rates may mask a heavy debt load as interest payments are minimal, but may balloon as interest rates rise.