Balancing your income against expenses can sometimes feel like trying to keep a seesaw level. This balance is precisely what the debt-to-income ratio measures and why it matters for your everyday life.
Understanding your debt-to-income ratio helps clarify if you can take on new financial obligations or if you should reassess your budget. It’s a topic every Kenyan considering a loan encounters.
By breaking down the debt-to-income ratio step by step, this article gives you real-life examples and practical checklists so you can confidently assess your financial situation.
Calculating your debt-to-income ratio the easy way
Anyone can check their own debt-to-income ratio at home with some simple maths, making it easier to plan for loans or savings goals.
Grab a calculator, jot down your financial figures, and you’ll have your debt-to-income ratio in no time, like adjusting household bills at the kitchen table.
Listing your total monthly debts accurately
Start by writing down every regular repayment you make: loans, credit cards, and even consistent hire purchases—anything that reduces your monthly income.
Don’t overlook smaller debts like a mobile loan or SACCOS instalments. Include the full amount due per month, even if it’s a short-term debt.
Examples: Jimmy’s car loan is 8,000 KES, M-Pesa loan is 2,000 KES, and credit card payment is 4,000 KES. His monthly debt total is 14,000 KES.
Adding up your gross monthly income sources
Calculate all money earned before deductions. For most, this is your gross salary, but add any side hustle earnings, business profits, or rental income.
For instance, Sarah earns 35,000 KES in salary and 10,000 KES from her shop. Her total monthly income is 45,000 KES to use in the debt-to-income ratio formula.
Comparing debt to total income ensures your ratio reflects the capacity to meet obligations, not just one source. Use the highest stable monthly figure.
| Step | What to do | Typical Example | Takeaway |
|---|---|---|---|
| 1. List monthly debts | Add all repayments due this month | Personal loan, car loan, shop credit | Include everything, even small loans |
| 2. Calculate total income | Add gross salary and other income | Salary + business profit | Use before-tax figures for accuracy |
| 3. Divide debts by income | Divide monthly debt total by income | 15,000 KES debts / 50,000 KES income | Use a calculator for accuracy |
| 4. Convert to percentage | Multiply the result by 100 | 0.3 x 100 = 30% | Percentage shows your exact ratio |
| 5. Interpret the result | Check standard benchmarks | 30% is below most lenders’ cap | Lower ratio means higher eligibility |
How lenders use your debt-to-income ratio to decide on loans
Lenders weigh the debt-to-income ratio as a key rule in judging whether you qualify for a loan—and for setting your interest rate.
They’ll glance at your ratio before digging into other paperwork. Expect your application to move faster if your ratio is clearly within lender guidelines.
Debt-to-income thresholds that trigger lender action
Most Kenyan banks and SACCOs favour ratios below 40 percent. If your ratio crosses this line, your loan request could be flagged for extra review or outright decline.
Any ratio over 50 percent makes finding affordable credit tough, and lenders may suggest a reduced loan amount or recommend paying off existing debts first.
- Check if your ratio falls under the lender’s preferred threshold to boost approval odds—most publish this figure on their websites or rate cards.
- Use the debt-to-income ratio calculator on bank platforms to double-check before applying; this reduces the anxiety during actual loan review.
- Clear small debts first, then recalculate; sometimes, paying off a single mobile loan makes the difference in your approval outcome.
- Ask bank officers for their precise cutoff in advance, using phrases like, “Does my 37% ratio meet your loan criteria?”
- Avoid new debts until your current loan is approved; every new obligation changes your ratio and could force a rejection.
Stay pro-active by matching your financial profile to published lender thresholds before you submit your application to cut frustration and delays.
Actions to take if your debt-to-income ratio is too high
Lenders won’t ignore a high ratio, but you have options to improve your eligibility even in tough months or after an emergency loan drawdown.
Target reducing larger monthly debt payments, as these have the biggest impact on your ratio. Speak directly with lenders about refinancing or adjusting terms.
- Consolidate debts into one lower monthly payment, making it easier to fall under the target ratio for lenders and giving you budget breathing space.
- Request a payment holiday or restructured schedule for a short period, especially from banks with established hardship programmes for formal and informal borrowers.
- Increase income through legal side hustles—every extra shilling counts. Sell unused items when necessary to raise the total income figure.
- Delay non-essential purchases and pause subscription payments, using the savings to clear outstanding obligations and reduce your ratio faster.
- Set reminders for payment dates and monitor your bank statements, keeping your monthly debt commitments up to date and avoiding missed payments that could raise your ratio.
Catching your debt-to-income ratio before a lender does means you can fix it quickly and keep your borrowing plans on track for the year ahead.
Smart strategies to improve your debt-to-income ratio this month
Making small changes to either your debts or your income produces fast improvements in your debt-to-income ratio, helping you reach your goal quickly.
Focusing on practical changes and tracking progress boosts your confidence and eligibility, whether you’re seeking a mortgage, car loan, or just managing family bills.
Consistent budgeting habits for debt control
Use a calendar reminder every Sunday night to review your expenses and spot debts that can be cleared or reduced before the next loan cycle begins.
Try writing down debts physically on paper in your wallet to visualise where money goes each month. This makes invisible debts easier to tackle, one by one.
At Sunday tea with family, announce a mini-goal—such as reducing mobile loan debt by 2,000 KES before the next holiday—to support accountability.
Boosting income with skills and small projects
Look for short-term jobs or extra hours during high-demand seasons, like working overtime in December or teaching skills to neighbours for a small fee.
Arrange a swap with friends—offer help with farm work or errands in exchange for small payments that add up and directly lower your debt-to-income ratio.
Review recurring expenses like streaming services every three months; cancel those not being used and put the money towards increasing your income or trimming debt obligations.
Realistic examples showing debt-to-income ratio decisions in action
When Grace applies for a school fee loan, her lender sees her debt-to-income ratio is 32 percent, below the 40 percent ceiling. Her application gets fast-tracked.
Moses, however, loads up a mobile app with small loans totalling 25,000 KES—pushing his ratio to 57 percent. The result: the bank offers him a reduced loan or asks him to pay off debts first.
A salary increase impacts the formula and results
If Naomi’s salary jumps from 35,000 KES to 50,000 KES, but her debt remains at 15,000 KES, her debt-to-income ratio drops from 43 percent to 30 percent. Suddenly, she’s more eligible.
A real-world example like Naomi’s shows why both debts and income matter, not just the amount owed. Adjustments on either side can tip the scale favourably.
Her personal script: “After my raise, I checked my ratio and saw my options improved, so I confidently approached another lender with my updated profile.”
Settling a single debt opens new lending doors
Jackson pays off his boda-boda loan three months early. As a result, his required repayments fall and his debt-to-income ratio moves from 46 percent down to 29 percent.
The bank officer’s body language shifts—he smiles and gives an approving nod—as Jackson’s profile hits the sweet spot for an affordable home improvement loan.
A simple, actionable takeaway: Pick the debt with the highest monthly payment first to see a strong change in your ratio before your next big application.
Decoding what a healthy debt-to-income ratio looks like for Kenyan families
Living with a debt-to-income ratio below 40 percent gives families greater stability and lets them handle emergencies without panic. This figure guides sensible borrowing limits.
Ratios between 20 percent and 35 percent are ideal for most urban households, leaving room to cover daily expenses, school fees, and the odd urgent need.
Why lenders use the specific 40 percent benchmark
Banks set 40 percent as the upper limit because borrowers still need enough money for food, transport, and medical needs after making loan payments.
If your ratio exceeds that benchmark, focus on reducing debts before actively seeking new credit lines. Compare your figure on loan application forms to see if you’re within range.
The actual scripts posted by lenders may read: “Applicants with a debt-to-income ratio over 40% may not be eligible for new loans until their debts are reduced.”
Red flags to watch for with personal finance decisions
Using half or more of your income on debt signals a warning—your family could struggle if an emergency hits, like loss of a job or big medical bills.
In group meetings or chama gatherings, some members advise limiting debts to less than 35 percent of income for more financial control and peace of mind.
When considering new debts, always compare your existing ratio with both lender benchmarks and your personal comfort level before proceeding.
Taking the next steps: Using the debt-to-income ratio as your money guide
Keeping an eye on your debt-to-income ratio gives you real control over your borrowing and repayment habits—helping you protect your family’s welfare now and in the future.
If your ratio feels high, don’t panic. Start with one small debt payoff, track each improvement, and check ratios every three months to keep moving towards your goals.
Be open with lenders about your current figures. Bringing updated numbers to the negotiating table shows responsibility and boosts your bargaining power instantly.
