Debt Ratio: What It Is and How to Calculate It from Your Bank Statement
The debt ratio — also called DTI (Debt-to-Income) or DBR (Debt Burden Ratio) — is arguably the most important financial metric you probably do not know about. It determines whether a bank will approve your mortgage, how much you can borrow, and whether your personal finances are sustainable long-term. CheckFin calculates it free from your bank statement to help you take control of your finances.
UK lenders typically decline mortgages when the DBR exceeds 35–40%.
What exactly is the debt ratio?
Your debt ratio is the percentage of your net monthly income that goes towards debt payments. It includes: mortgage payments, personal loans, credit card payments, financing (car, appliances), and buy-now-pay-later services such as Klarna or Clearpay. It does not include rent or household bills — those are accounted for separately in the DDR. It is calculated by dividing your total monthly debt payments by your net monthly income and multiplying by 100.
What is a healthy ratio?
The generally accepted thresholds are: less than 30% is considered healthy and leaves room for savings and emergencies. Between 30% and 40% requires caution — it is viable but does not leave much margin. Between 40% and 50% is high risk, and most banks will decline new lending. Above 50% is unsustainable and you are likely in a debt spiral. The Financial Conduct Authority and most UK lenders recommend not exceeding 35% as a general rule.
Why does your debt ratio matter?
Beyond mortgages, your DBR is a key indicator of financial health. A high DBR means a large portion of your income is committed before you can decide how to spend it. This makes you vulnerable to any unexpected event: a car repair, a medical bill, or a temporary reduction in income. Knowing your real DBR lets you make informed decisions about new financed purchases or changes in your lifestyle.
How to calculate your real ratio (not the theoretical one)
Many online calculators ask you to enter your debts manually — but that only works if you remember all of them. The reality is that most people underestimate their debts because they forget small finance agreements, buy-now-pay-later purchases, or subscriptions that include a credit component. CheckFin analyses your real bank statement and automatically detects all recurring debt payments, including ones you may have forgotten.
How to improve your debt ratio
There are two levers: reduce debt or increase income. On the debt side: cancel unnecessary subscriptions, pay off the smallest debts first (snowball method), consolidate financing if you can get a lower rate, and avoid new buy-now-pay-later purchases. On the income side: negotiate a pay rise, seek supplementary income, or monetise underused assets. Every £100 you reduce in monthly debt payments significantly improves your ratio.
Debt ratio for the self-employed
If you are self-employed or freelance, the calculation is more complex because your income may vary month to month. CheckFin uses the average of confirmed income during the analysed period. Additionally, it automatically detects whether you are paying self-employment taxes and national insurance contributions, so you can differentiate between business expenses and personal debt. This is especially relevant when applying for lending, as banks tend to be more conservative with self-employed applicants.