The debt-to-income ratio (DTI) is sometimes used by creditors to determine if they will extend credit or a loan to a consumer or what interest rate a consumer will be offered. The DTI — sometimes called a "back-end ratio" — can also have an effect on a person's credit score.

Typically, lenders prefer to see a consumer with a DTI of 36 percent or less.

A person can figure out his or her DTI with a simple equation. Simply divide debt payments for the month by your net (take home) pay. The debt payments that should be figured into that equation include any long-term loans such as mortgage payments, car payments, student loans, personal loans or credit cards that will not be paid off within several months.

Example: Joe has a monthly net income of $4,500. His payments per month are as follows: $1,000 for his mortgage; $400 for his car payment; $200 for student loans; and $120 on his credit cards. His expenses total $1,720.

Joe's DTI would be 38 percent. This number is a little on the high side.

From Advantage Credit Counseling Service