Which of the following is a component of the debt-to-income ratio?

The debt-to-income (DTI) ratio is an important financial measurement that shows the percentage of a person's monthly gross income that goes toward paying debts. This ratio is mainly used by lenders to assess a borrower's ability to manage monthly payments and repay debts.

Gross monthly income is a critical component of this ratio because it represents the total income a person earns before any deductions, such as taxes and other withholdings. This figure is used to calculate the DTI by comparing it to the total monthly debt payments. The formula for calculating DTI is as follows: total monthly debt payments divided by gross monthly income, expressed as a percentage.

Including gross monthly income provides a more accurate representation of financial capability because it reflects all earnings available to meet debt obligations. By measuring monthly debt against this income figure, lenders can better understand the borrower’s financial situation and ability to take on additional debt.

Options related to assets, secured debts, or averages do not play a direct role in determining the DTI, making gross monthly income the essential component in this calculation.