Your debt ratio is comparing your total debt to your total gross income. The first step is listing all your bills in column. In the second column list the monthly payments for each bill in column one. In column three list the balance due for each bill. For credit cards there is not a set monthly payment. To figure out credit cards estimate the monthly payment as 4% of the balance owing. If your owe $2000.00 list your monthly payment as $80.00 ($2000.00 times .04). 

Now that you have figured out your debt you need to look at your income. Your income is your gross annual income before taxes, this is important, before taxes. You can than add to that any other income such as child support, alimony, free-lance income and investment earnings. Use the annual amount for this calculation. You can not use over time or bonus money unless it is guaranteed, and you must be able to prove this. If you wage is an hourly wage, use your average weekly paycheck and times it by 52 to get your estimated annual income.

Next take your yearly gross income and divide by 12 to get your monthly income. Now divide your monthly debt payments by your total monthly income. If you're total income is $3000.00 and your total monthly debt is $800.00, your debt –to-income ratio is $800.00 divided by $3000.00 which is .27 or 27%.

Now what does this mean to you and your mortgage? Use these guidelines:

10% or less:

You're in great shape. Lenders view you favorably make certain you have good, low-rate cards.

11% to 20%:

You should have no trouble getting loans but contact the Canadian credit bureau. As you edge near 20%, you've probably have too much debt. So if you are buying a house it would be smart to start scaling back on your credit cards etc.

21% to 35%:

You're heading for trouble so stop charging! You make think, well I am not having trouble getting new cards, you are spending too much of your monthly income on paying your debt. If you look honestly you are having trouble saving money.

36% to 50%:

Get rid of your credit cards and figure out a plan to get out of debt. Seeking help with this is wise.

More than 50%:

You are in need of help. You need to make an appointment to see a credit counselor or a financial adviser and speak with them about your credit rating and what steps you need to take to save it. Don't panic, get help. Start by working to lower your debt.