1. What Is Income Debt Ratio?

Income Debt Ratio (IDR) is a financial metric that measures the percentage of a person's income that goes toward debt payments. It helps lenders and individuals assess financial health and debt burden.

2. How Does The Calculator Work?

The calculator uses the IDR formula:

Where:

• \( debt \) — Total monthly debt payments ($/month)
• \( income \) — Total monthly income ($/month)

Explanation: The equation calculates what percentage of your monthly income is used to service debt obligations.

3. Importance Of IDR Calculation

Details: Lenders use IDR to evaluate loan applications, as it indicates a borrower's ability to manage monthly payments. A lower ratio generally indicates better financial health.

4. Using The Calculator

Tips: Enter your total monthly debt payments and total monthly income in dollars. Both values must be positive numbers, with income greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good income debt ratio?
A: Generally, a ratio below 36% is considered good, with many lenders preferring ratios below 43% for mortgage applications.

Q2: What debts should be included in the calculation?
A: Include all recurring monthly debt payments such as mortgage/rent, car loans, credit card payments, student loans, and other personal loans.

Q3: How does IDR differ from debt-to-income ratio?
A: IDR is essentially the same as debt-to-income ratio, both measuring the percentage of income used for debt repayment.

Q4: Why is my IDR important for loan applications?
A: Lenders use IDR to assess your ability to manage monthly payments and repay borrowed money. A high ratio may limit your borrowing options.

Q5: Can IDR be too low?
A: While a very low IDR indicates strong financial health, having some debt can be normal and even beneficial for building credit history.