Debt-to-income ratio is a financial metric that compares your monthly debt payments to your gross monthly income, represented as a percentage.
How does the debt-to-income ratio affect things?
Debt-to-income ratio, or DTI, is an important financial measure in Canada. It helps both individuals and lenders understand how much of a person’s monthly income is used to pay off debts. DTI is a key factor when applying for new credit, such as a mortgage, car loan, or personal loan. Understanding your DTI can help you make better decisions about borrowing and managing your finances.
DTI for individuals
For individuals, DTI shows the percentage of your monthly gross income that goes toward paying debts. Gross income is what you earn before any deductions, and net income is the amount left over after deductions like taxes are taken out. Your debt-to-income ratio calculation includes payments for things like credit cards, student loans, car loans, and mortgages.
Lenders use your DTI to decide if you are a risky borrower. Note that DTI doesn’t distinguish between “good” and “bad” forms of debt. For the purpose of this ratio, it doesn’t matter where your debt comes from. For example, one person could have mortgage debt, and another has a high amount of credit card debt. In either case, a high debt load would show a high DTI for both of these people, even though their sources of debt are vastly different.
If your DTI is low, it means you are using a smaller portion of your income to pay debts. This makes you more likely to be approved for new loans, since you are seen as more likely to repay what you borrow. If you have a low debt-to-income ratio, you have more leverage for negotiating interest rates, which can save you a good amount of money in the long run.
On the other hand, a high DTI means a larger part of your income is already committed to debt payments. This can make it harder to qualify for new credit, and you may be offered higher interest rates.
DTI for Canadians
In Canada, the debt-to-income (DTI) ratio is a key measure of how much debt households carry compared to their income. As of the first quarter of 2025, Statistics Canada reports that the average DTI ratio for Canadian households was 173.94%. This means that, on average, Canadians owe about $1.74 for every dollar of disposable income they earn. This figure is alarmingly high and not far from the all-time peak of 179% reached in late 2017.
A high DTI ratio signals that many Canadian households are financially stretched. When so much of a household’s income goes toward paying off debt, there is less money available for savings, emergencies, or everyday expenses. This leaves families more vulnerable to economic shocks, such as job losses, rising interest rates, or higher inflation. For example, if interest rates go up, monthly payments on variable-rate loans and mortgages can increase, making it even harder for people to keep up.
The household debt service ratio – calculated as total obligatory payments of interest and principal on debt as a proportion of household disposable income – stayed steady at 14.40% in Q1 2025. A persistently high debt service ratio implies that Canadian households remain vulnerable to economic challenges.
When DTI and debt service ratios are elevated, it affects not just individuals but the financial stability of the entire country.
What’s a debt-to-income ratio?
A debt-to-income ratio is a financial measurement that compares how much money you owe each month to how much money you earn. It’s usually shown as a percentage. Canadian lenders use these calculations to decide if you can afford to take on more debt, such as a mortgage or a loan. In Canada, the two main debt-to-income ratios are the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio. These ratios help banks and lenders see if you can handle your current payments and any new loans responsibly.
Gross Debt Service ratio
- The Gross Debt Service ratio (GDS) measures the percentage of your gross monthly income used to pay housing costs (like mortgage payments, property taxes, heating, and 50% of condo fees).
- Lenders usually prefer your GDS ratio to be 32% or less.
- A lower GDS ratio means you’re less likely to have trouble making your mortgage payments.
Total Debt Service (TDS) ratio
- The Total Debt Service ratio (TDS) looks at the percentage of your gross monthly income that goes toward all your debt payments (including housing, car loans, credit cards, and other debts).
- Lenders typically want your TDS ratio to be 40% or less.
- A lower TDS ratio shows you’re managing your debts well and are less risky to lenders.
How is the debt-to-income ratio different from the credit utilization ratio?
The debt-to-income ratio measures how much of your monthly income goes toward paying all your debts, like loans and credit cards. The credit utilization ratio looks at how much of your total available credit is being used at a certain point in time. As a rule of thumb, lenders like to see Credit Utilization Ratios below 30%. DTI helps lenders decide if you can afford new loans, while credit utilization affects your credit score. In both cases, the lower the better!
Good vs bad debt-to-income ratio
Understanding what makes a debt-to-income (DTI) ratio “good” or “bad” is important for Canadians who want to keep their finances healthy.
A good DTI ratio is generally considered to be 36% or less. This means that less than 36% of your gross monthly income goes toward paying debts. Most lenders also look for a GDS ratio of no more than 39% and a TDS ratio of no more than 44%. Staying within these limits shows you are managing your debt responsibly and are less likely to default on new loans.
A DTI ratio between 37% and 42% is still manageable, but you should be careful about taking on more debt. If your DTI is between 43% and 49%, it indicates financial strain. At this level, you may struggle to keep up with payments, especially if your income drops or expenses rise.
A DTI ratio of 50% or more is considered dangerous and high risk. At this point, lenders may deny new credit, and you could be at risk of falling behind on payments.
Try our Debt-to-Income ratio calculator to see where you stand.
Tips on how to decrease your DTI ratio
- Pay down high-interest debt first, like credit cards, by making extra payments whenever possible.
- Create and stick to a budget to track income and expenses, helping you cut unnecessary spending.
- Avoid taking on new debt: limit or suspend additional borrowing until your DTI improves.
- Consider consolidating credit card debt to lower interest rates and pay it off faster.
- Increase your income through side jobs, overtime, or asking for a raise.
- Use tax refunds or bonuses to pay down debt instead of spending.
- Negotiate lower interest rates with creditors or service providers to reduce monthly payments.
- Avoid long-term loans that extend your debt burden unnecessarily, like long-term or higher-interest car loans.
Following these steps can help lower your DTI ratio, making it easier to qualify for credit and improving your financial health.
Key takeaways
Your debt-to-income (DTI) ratio is a crucial measure of financial health, showing how much of your income goes toward debt payments. In Canada, many households carry high debt levels, with an average DTI of nearly 174%, which poses risks during economic challenges. Keeping your DTI below 36% is ideal, while anything above 50% signals serious financial strain.
Monitoring your DTI helps you understand your borrowing capacity and avoid overextending yourself. By managing debt carefully—paying down balances, budgeting, and avoiding new loans—you can improve your financial stability and qualify for better credit options. Use tools like our DTI calculator to stay on track and make informed decisions. If you’re currently dealing with debt, you can contact one of our trained credit counsellors for advice – they can help you find a debt solution that’s the right fit for your specific situation.
