# Debt to income ratio

I live in Canada, and here the debt-to-income ratio is 1.83. I just want to be sure: is it really the after-tax monthly income divided by the total debt monthly payment? Because I don't understand how the average can be 1.83 - logically no one would lend you when you get to a debt ratio of 1, since it would be too risky. So 1.83 is very big

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– 1muflon1
Commented Dec 1, 2022 at 14:55
• Ive opened my account yesterday, when I want to accept it as an answer it tells me I can't since I don't have the 15 reputation to cast a vote. Commented Dec 1, 2022 at 14:56
• you should be able to accept the answer (click on the tick mark) even with 1 rep
– 1muflon1
Commented Dec 1, 2022 at 16:13
• also no pressure. You are just clearly new user so I am explaining how the site works, if you think neither of the answers is good answer do not feel you have to do it. But if some answer answered your question you should accept it
– 1muflon1
Commented Dec 1, 2022 at 16:14

## 2 Answers

Debt refers to the total amount owed, not repayments. The key here is to recognize that debt is a stock and income is a flow.

What the metric says is that with a debt-to-income ratio of 1.8, Canadians owe 1.8 times their annual income.

What you describe is the debt-service ratio. If that is above 1, then the household will default at the end of the reference period (month or year) as income is clearly insufficient to cover debt repayments.

I searched online and I found two different methods of calculating the debt to income ratio, and my understanding is that one is at the individual level and the other is at the aggregate level (e.g. sum across households in Canada).

The first method has an introduction here. Basically, "it’s the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt", and it is calculated for each individual. And I noticed here a summary of average debt to income ratio at individual level for each province in Canada. The average looks ok - all below 50%.

The second method seems mostly coming from Statistics Canada, a Canadian government agency. I found the news that mentioned 1.83 here, along with some other debt information at aggregate level across Canada. It mentions, "Household debt in Canada increased to 180.02% of the gross income in 2022." This is an aggregated measure - the rough idea is use total debt (for example, mortgage， car loans, credit cards, etc.) across all Canadian household divided by aggregate income across all Canadian households, rather than calculating an ratio for each individual and averaging across households.