Money, Explained From the Inside

Tools / Borrow / Chapters 10 and 14

Borrowing capacity & debt-to-income

Lenders look at how much of your income is already committed to debt, and how much of your credit you use. See your numbers the way they do, then add your own safety margin.

1 · The idea

Debt-to-income and utilisation

Lenders add up all your monthly debt payments and divide by income. Many keep this below 36–43%, but a lower figure is safer. Utilisation is balances ÷ credit limits and is often watched below 30%.

The formula

DTI = monthly debt payments ÷ gross monthly income

DTI
debt-to-income ratio
Utilisation
how much of your available card limit you use

2 · A worked example

On $5,000 a month with $500.00 of debt payments, DTI is 10%. Adding a $400.00 loan payment takes it to 18%. A 36% limit leaves $1,300 of headroom: about $65,653 at 7% over five years. Card use: 30%.

3 · Now use your own numbers

Change anything. The result updates instantly.

DTI today
10%
DTI with the new payment
18%
Headroom to 36%
$1,300More monthly debt you could carry
Loan that headroom could support
$65,653at 7.00% over 60 months
If rates rose 3 points
$1,394.92DTI would be 38%
Card utilisation
30%

What this means

A lender’s limit protects the lender. Your own ceiling should protect your life: debt payments are fixed while income can fall.

High card utilisation signals stress to lenders even if you pay on time. Paying balances down before applying can improve how you are seen.

Illustrative, not personal advice. Inspired by Chapters 10 and 14 of Money, Explained From the Inside. Your figures stay in this browser. Real products add terms, taxes and conditions that this simple model leaves out.

4 · Take care

What this tool can’t see

  • Lender rules differ by country and product; these thresholds are common reference points, not guarantees.
  • Being allowed to borrow is not the same as being able to afford it. Use the stress test.

5 · Go further

Where this fits

See it in a life:

DavidIncome without wealth Anir & KatiaThe biggest decision of their lives

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