Debt-to-Income Ratio Canada: What It Is and Why It Matters

Ever feel like your paycheque hits your account and vanishes before you can blink? Between bills, loans, and everyday expenses that keep climbing, it’s easy for debt to take more than its fair share. That’s where your debt-to-income ratio (DTI) comes in.

What Is a Debt-to-Income Ratio (DTI)?

Your debt-to-income ratio in Canada is like a quick pulse check on your finances. It shows how much of your income goes toward debt — and whether things are balanced or getting a little too tight.

Simply put, it measures how much of your gross monthly income (before taxes) goes toward paying off debt — and includes things like credit card balances, car loans, student loans, and mortgages.

What Is a Good Debt-to-Income Ratio in Canada?

Everyone’s situation is a bit different, but lenders in Canada generally use these DTI levels as a guide:

• Below 36%: You’re in good shape. This range shows your debt is manageable, leaving room for saving and spending on essentials.
• 36%–49%: You’re managing, but new credit could be tougher to qualify for or come with higher interest rates.
• 50% or higher: You’re likely feeling stretched. A high DTI means too much of your income is going toward debt, which can make it harder to keep up with payments or qualify for new credit.

Most mortgage lenders in Canada look for a debt-to-income ratio under 42% when deciding if you can handle a loan.

Why Does DTI Matter?

1. It Affects Loan and Mortgage Approvals

When you apply for new credit, banks and lenders look at your debt-to-income ratio in Canada to see if you can realistically take on another payment. A high DTI may make them think twice about approving your loan or mortgage.

2. It Impacts Your Day-to-Day Cash Flow

If most of your income goes toward debt, it leaves less for groceries, rent, savings, or emergencies. Over time, that can lead to stress and financial burnout.

3. It Shapes Your Financial Future

A lower DTI opens more doors. You’ll find it easier to qualify for loans, plan for bigger goals like buying a home, and build long-term stability.

How to Calculate Your DTI

You don’t need a fancy spreadsheet to figure it out — your calculator app works just fine. Here’s how to calculate your debt-to-income ratio in Canada step by step:

1. Add up your monthly debt payments (credit cards, loans, car payments, mortgage, etc.).
2. Divide that total by your gross monthly income (what you make before taxes).
3. Multiply by 100 to get your percentage.

For example, if your monthly debt payments are $1,200 and your income before taxes is $4,000, your DTI would be:

(1,200 ÷ 4,000) × 100 = 30%

That means 30% of your income is going toward paying down debt each month. The lower your DTI, the more financial breathing room you have.

If you don’t feel like doing the math yourself, you can try Farber’s free DTI calculator to find your number in seconds and see where you stand.

How to Lower Your Debt-to-Income Ratio

If your DTI levels are higher than you’d like, don’t panic. You can absolutely turn things around—it just takes a few small, consistent changes.

Create a Realistic Budget

Skip the complicated spreadsheets. A good budget is one you’ll actually stick to. Start by listing your income and expenses, then track your spending for a month.

Once you see where your money’s going, you’ll spot easy areas to cut back (like unused subscriptions or too many takeout nights). Small adjustments can free up cash to pay down debt and gradually lower your debt-to-income ratio in Canada.

Pay Down High-Interest Debts First

Tackle the expensive stuff first. Focus on credit cards and payday loans since their interest eats away at your progress. Whether you prefer the avalanche method (highest interest first) or the snowball approach (smallest debts first), the key is momentum.

Simplify with Debt Consolidation

Juggling multiple payments? Consider a debt consolidation loan to roll them into one monthly payment, often at a lower interest rate. It can make managing debt easier and reduce stress. Just make sure you don’t take on new debt while paying it off.

Find Ways to Boost Income

Sometimes, improving your DTI isn’t about spending less, it’s about earning more. Ask for a raise, pick up a side gig, or sell unused items online. Even a small income bump can help balance things out faster.

Press Pause on New Debt

While you’re lowering your DTI, hold off on big purchases or new credit cards. Those “buy now, pay later” deals can sneak your ratio back up. Give yourself time to breathe before adding anything new.

Explore Debt Relief Options

If your debt feels unmanageable, it might be time for outside help.

A consumer proposal through a Licensed Insolvency Trustee can reduce what you owe on unsecured debt by up to 80%, stop interest, and help you regain control of your finances — and all while protecting your assets.

Stay Consistent

DTI improvement takes time, but every payment and smart decision adds up. Recheck your ratio every few months using Farber’s DTI calculator to track your progress. Seeing that number go down? That’s motivation to keep going.

How Farber Can Help

If your debt-to-income ratio in Canada feels like it’s weighing you down, you don’t have to figure it out alone.

At Farber, our Licensed Insolvency Trustees help Canadians find practical ways to manage debt, from budgeting and consolidation to debt relief options like consumer proposals.

We also offer a free DTI calculator that lets you quickly see where you stand and how different changes can improve your financial outlook.

Take the first step toward a healthier financial future. Book a free consultation today and find out how to lower your DTI and get back on solid ground.

FAQs About Debt-to-Income Ratio in Canada

What Is the Average Debt-to-Income Ratio in Canada?

As of 2025, Canada’s average household debt-to-income ratio sits around 170%. That means Canadians owe about $1.70 for every dollar they earn. Ideally, your personal DTI should stay under 42%.

What Are Ideal DTI Levels for a Mortgage?

Most lenders prefer to see DTI levels below 36% to 42% for mortgage approval. Anything higher can affect how much you’re allowed to borrow.

Can a Consumer Proposal Help Lower My DTI?

Yes. A consumer proposal can reduce your unsecured debt, simplify your payments, and improve your debt-to-income ratio over time.

Is There a DTI Calculator for Canada?

Yes! You can try Farber’s free DTI calculator to see how your debt compares to your income and track your progress over time. It’s fast, easy, and helps you understand where your money’s going.