Your debt level indicates how much of your income goes towards debt repayments and is one of the key factors in determining whether you can afford additional borrowing. In this guide, we explain what it means, how to calculate it step by step using the ratio formula, how personal debt levels differ from those of a business, where Spain stands, and which mistakes to avoid to maintain a healthy financial buffer.
What your debt level is
Your debt level is the percentage of your income that already goes towards debt repayments. It is calculated by dividing your total monthly debt repayments by your net income and multiplying by 100. As a guideline, this percentage should not exceed approximately 35% or 40% of your net income.
Knowing your debt level helps you understand how much room you have before applying for a mortgage, a personal loan, or other financing. The aim is not to reach the limit, but to leave enough room to cover expenses, save, and handle unexpected costs. With CreditCheck, you can use the Mortgage Payment Simulator or Calculate your personal loan payment to see how each option fits your budget.
What your debt level actually measures
Your debt level shows how much of your income is committed each month to loans, mortgages, credit cards, and other obligations. The higher it is, the less room you have for other expenses and savings.
Financial institutions use it as one of their initial screening criteria when assessing an application. A moderate percentage suggests stability and repayment capacity; a high percentage suggests that someone may struggle to take on additional repayments.
This is why you should calculate it before applying for financing, rather than afterwards. Knowing where you stand in advance allows you to adjust the amount you request or wait a few months to improve your situation.
The debt-to-income ratio
The debt-to-income ratio is the mathematical expression of this concept. It is calculated using a simple formula:
Monthly debt repayments ÷ monthly net income × 100
You only need two figures:
- Monthly net income: the money you actually receive each month after taxes and social security contributions.
- Monthly repayments: the total of all your loan, financing, and credit card payments.
For example:
- Net income: €2,200
- Car loan payment: €220
- Personal loan payment: €110
- Total repayments: €330
The calculation would be:
330 ÷ 2,200 = 0.15
0.15 × 100 = 15%
In this case, the person spends 15% of their income on debt repayments. This is a comfortable ratio, with enough room to take on additional obligations without compromising their financial stability.
How to calculate your debt level step by step
1 - Add up your monthly net income
Identify the regular income you receive after taxes. You can include your salary, recurring self-employment income, pensions or stable benefits, and rental income.
You should not include prize money, one-off jobs, or money you are unlikely to receive again. When your income varies, use the average of the last six or twelve months to obtain a more cautious estimate.
2 - Gather all your debt repayments
Add up all the obligations you pay each month: mortgages, personal loans, vehicle financing, credit cards, deferred purchases, and instalment payments.
A common mistake is to focus only on large debts. Several small repayments can significantly reduce your available budget when considered together.
3 - Apply the formula
Divide your total repayments by your net income and multiply by 100.
For example:
- Net income: €2,500.
- Monthly repayments: €500.
- Calculation: 500 ÷ 2,500 × 100
- Debt-to-income ratio: 20%
This person spends 20% of their income on debt repayments. Although they have room before reaching 40%, that does not mean they should use it all.
4 - Check your actual budget
Rent, food, utilities, and transport are not debts, but they directly affect your ability to repay. Before taking on a new repayment, check whether you will be able to cover your usual expenses, maintain some savings, and handle unexpected costs.
The mathematical limit does not always translate into a comfortable and sustainable repayment.
Personal debt levels compared with business debt levels
Personal debt levels measure the burden of an individual’s or household’s debt repayments relative to their net income. This is the calculation we have covered: monthly repayments divided by income, using 35%–40% as a general guideline.
How a business’s debt level is measured
In business, the approach changes. A business’s debt level is measured by comparing its debts with its resources, rather than its monthly income.
The most common ratio compares total liabilities with equity:
Total liabilities ÷ equity
A result close to 1 is generally considered balanced, as it indicates that the business is financed through similar amounts of debt and equity. Much higher values indicate a strong reliance on external financing.
Other indicators are also used, such as debt relative to total assets or the interest coverage ratio, which assesses whether earnings are sufficient to cover interest payments. The key difference is that a business measures its debt against its balance sheet structure, while an individual measures it against their disposable income.
Spain’s debt level
The concept also applies at a national level. Spain’s debt level is analysed through household, business, and public sector debt, usually in relation to GDP.
Household indebtedness has moderated in recent years compared with the peaks of the previous decade, although it remains sensitive to changes in interest rates. This is a useful macroeconomic reference for understanding the wider context, but it does not replace an individual calculation: your personal situation depends on your own income and debts, not the national average.
Common mistakes when calculating your debt level
- Using gross income: the calculation should always use net income.
- Forgetting smaller financing commitments: credit cards and deferred purchases count too.
- Treating 40% as a target: it is a guideline limit, not a goal to aim for.
- Ignoring everyday expenses: rent, food, and utilities affect your actual repayment capacity.
- Using your best month as a reference: with variable income, a cautious average is preferable.
- Failing to consider future changes: income and expenses may change during the repayment period.
How to improve your debt level
Reducing or paying off smaller debts can free up part of your budget. In some situations, it is better to wait several months before applying for additional financing.
It can also help to avoid new purchases on instalment plans, reduce outstanding credit card balances, review recurring subscriptions, and build an emergency fund before applying for a mortgage. Extending the repayment term lowers the monthly payment but increases the total interest cost, so you should assess the full cost of borrowing rather than just the monthly payment.
Verified data to understand your actual financial situation
Your bank transactions allow for a more accurate analysis of your income, expenses, and financial habits. Unlike a form, where information is self-reported and may contain errors, verified data reflects what actually happens in your account each month.
At CreditCheck, we use Open Banking to work with this verified data, calculate your debt level more accurately, and help you simulate different amounts and repayment terms before applying for financing. The entire process is secure: we never access your banking credentials or move money, and we only receive a read-only report with your consent.